Leju Holdings Limited (NYSE:LEJU) Q1 2016 Earnings Conference Call May 16, 2016 7:00 AM ET
Melody Liu - Director, Investor Relations
Geoffrey He - Chief Executive Officer
Min Chen - Chief Financial Officer
Hillman Chan - Macquarie
Robert Cowell - 86Research
Ming Xu - UBS
Nora Zhang - Bank of America Merrill Lynch
Hello and thank you for standing by for Leju’s First Quarter 2016 Earnings Conference Call. At this time, all participants are in listen-only mode. After management’s prepared remarks, there will be a question-and-answer session. 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. Melody Liu, Leju’s Investor Relations. Please go ahead.
Thank you. Hello, everyone, and welcome to Leju’s first quarter 2016 earnings conference call. Today, we will update you on our financial results for the first quarter ended March 31st, 2016. If you’d 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 2016. Ms. Min Chen, our CFO, will then discuss the financial results in more detail. We will then open the call to questions.
Before we continue, please allow me to read you Leju’s Safe Harbor statement. Some of the statements during this conference call are forward-looking statements made under 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, Mr. Geoffrey He. Please go ahead.
Thank you for joining us on the call today. We are pleased to report another quarter of steady growth as the real estate market in major Chinese cities remained active. Particularly our e-commerce services business continued to deliver healthy growth despite intensive competition. We also saw exciting progress in our secondary listing and home furnishing businesses.
In the primary marketing services, our strong execution and the continued efforts in product innovation widen our lead in the industry as a marketing platform across both media coverage and a sizable assess of the home hunting process.
In April, we were the first platform in the industry to launch a virtual reality showroom experience and there we’re viewing towards recorded by Jones which allowed the home buyers in crowd cities to experience 3-D virtual site visits from the comfort of their homes or conveniently on their mobile devices.
Our focus on leveraging the latest technology attract manage our [indiscernible] clients who recognized a value of our innovative marketing ability for their products. In addition, we launched an upgraded version of our mobile app to further enhance user experience. The new version of this app is our latest app shop with many user-friendly and there are useful features including comprehensive real time news feed, exclusively private car site visits, net search on properties and home promotional events.
As our mobile traffic has grown to over half of our total traffic, we believe our new and upgraded mobile infrastructure will allows to better connect our online content with our offline services and help us capture the growth of opportunity.
During the first quarter, we also deepen our cooperation with various strategic partners in product development and a brand promotion of cooperation with leading mobile platforms including [indiscernible] one of the most popular news app enable us to sell out our content to a broader base of users and experience media influence on the mobile side.
We are retaining our cooperation with Didi Chuxing to expand private car site visit product to Didi stations at various product showrooms. This product brings broad brand a brand recognizing to both Didi and the developers and the both further encourage the use of our private car products in general.
At the end of the quarter, 240,000 orders have been placed to almost 13,000 projects since its official announce in July last year. In the secondary market, our listing services continued strong growth this quarter. Our verified listing product has generated positive feedback and now has almost 39,000 paying agents in 17 cities with where we operate.
Furthermore, we launched 36 new cities websites for local agents to subscribe to our listing product and received great feedback. We will remain focused on being a known a lot informational platform which we believe will help us in achieve stability and sustainable profitability in the years ahead.
Turning to our home furnishing market business, this quarter our home furnishing advertising business maintained a solid leadership in the industry. We increased our investment in Qiang Gong Zhang, which is an efficient online platform that connects home furnishing contractors directly with consumers.
Since Chinese New Year, we have hosted a numerous marketing events to identify and to bring qualified independent contractor to our platform, offering them an online renew to develop their own brand and expand their business. We also increased marketing spending to raise awareness of the platform and then consumers launching promotional combining direct material sourcing with contractor services to offer consumers dependable high quality and low cost home decorating contract.
We are able to achieve this by directly connecting homeowners with contractors and eliminating low value-added agents in the traditional value chain.
By the end of the first quarter, we had more than 29,000 qualified contractors providing customized services directly to homeowners in more than 60 cities of our contractor platform. We are pleased with the progress of Qiang Gong Zhang and we’ll continue to expand this business in more cities and reflects new product and services along the value chain.
Looking to the quarters ahead, we expect market competition to remain fierce and the overall related market environment to face some uncertainties across the different parts of cities. However, we’ll remain focused on very best-in-class marketing solutions to our primary and the secondary market agents, clients through continues product innovation and cooperating with strategic partners. We also expect to further investing our contractor platform to growth this business in order to serve the growing population of homeowners and capture opportunities in this last for underserved home furnishing markets.
Now I will turn the call over to our CFO, Ms. Min Chen, who will review our financial highlights for the quarter.
Thank you, He. Good morning and good evening, everyone. For the first quarter of 2016, we reported total revenues of 113 million representing an increase of 20.9% over the same quarter last year. Our e-commerce services revenues was 86.1 million, approximately 76% of our total revenue this quarter, posting a 28% growth from the same period last year. This increase was primarily driven by increases in both the number of coupons redeemed and in the average price per coupon redeemed.
During the quarter, we generated e-commerce revenues from 53 cities across China. Our online advertising services revenues for this quarter declined by 3% to 21.8 million as a result of a decrease in property developer’s online advertising demand. Our advertising services contributed 19.3% over our total revenues this quarter.
Our listing services revenues for the quarter increased by 33% to 5.1 million from the same quarter last year. The higher revenue was driven by growth in secondary home sales.
Our selling, general and administrative expenses increased by 31% to 113.3 million from the same quarter last year, primarily due to increased marketing expenses related to the company’s e-commerce business as a result of our efforts to maintain our market share as well as the promotion of the company’s listing business and home furnishing businesses.
Our first quarter non-GAAP loss from operations was approximately 7.4 million for this quarter, while our non-GAAP loss attributable to Leju shareholders was approximately 5.3 million.
As of March 31st, 2016, our cash and cash equivalents balance was approximately 258 million. For the first quarter in 2016, our next cash provided by operating activities was 1.3 million, mainly attributable to a decrease in unbilled accounts receivable of 6.3 million, a decrease in customer deposits of 9.4 million, an increase in other current liabilities of 6.5 million and a decrease in prepaid expenses and other prime access of 2.7 million. This was partially offset by non-GAAP net loss of 5.4 million, a decrease in income tax payable of $8.8 million and a decrease in accrued payable and welfare expenses of $9.5 million.
At this point, we’re maintaining our previous guidance of total revenues of 660 million to 690 million for the full year of 2016, which represent an increase from the 2015 revenue of approximately 15% to 20%. 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.
Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Hillman Chan of Macquarie. Please go ahead.
Thank you for taking my question. So my question is about the expiry of our cooperation with Baidu, so how should we think about the impact on that revenue in the first quarter. And for the related cost saving from the expiry of the Baidu cooperation, how should we look at you know where these cost saving will go to in the future? This is my first question. Thank you.
Okay, thank you for question. Actually we closed our almost five years long term partnership with Baidu, but as you know that previous partnership it was the focused on the PC resources, but now actually we already see our traffic most actually increase of the traffic coming from the mobile side. So we - I am to say that the combination of the previous partnership is the combination of the cooperation on the PC resources, but we still continued actually cooperation with Baidu on the mobile side.
And for the cost of saving from the Baidu side, we actually - we spent to more mobile side resources including you see, including UC, including Total [ph] including other as we know the popular the website apps. So we actually from the Baidu - from Baidu - the previous actually we put a lot of resources on Baidu, but now I think it’s still positive for us because we get our saves resources to verify the sources of most type which actually verified our traffic resources, so which is very good.
And from the first quarter, I think we are really see to expect actually is very positive because we gained more mobile resources and mobile traffic and actually the leads from the mobile side are more effective than PC.
I think I am not sure, that answered your all question.
Your next question comes from Robert Cowell from 86Research. Please go ahead.
Hey Geoffrey and Min, thanks for taking time to answer my question. You mentioned in your prepared remarks about the recent launch of VR and aerial, virtual reality and aerial site business for some new home project. I am kind of just interested in your take on how technology can be employed to improve the home buying experience and how quickly maybe VR or even video side business can be rolled out across the website?
Okay. Actually, we are still at the very initial stage to allowance this VR product, but especially on the mobile side, we are already gained very positive feedbacks from both developers and well our consumers, because the VR product - our VR products that can show directly about the rooms, about what the developers sale and you can especially when we put on the mobile phones, the consumers can very positively feel how the rooms looks like. So it’s a very positive product. But the technology itself I think it still had very initial stage. We will spend more resources to further enhance the technology to bring people more vivid actually impression of the new rooms. And we are still thinking about how to use these technologies to the secondary market and later on the home furnishing market. So it’s a stock, it’s a very good stock for us.
Okay, thank you.
Thank you, Robert.
Your next question comes from the line of Ming Xu of UBS. Please go ahead.
Hi, thanks for taking my question. So my first question is regarding the secondary home listing business, so we know that one of the largest agencies Homelink recently accounted that they will not post these things on the external platform such as Anjuke or your platform and they will concentrate on their Niu Jia platform and apps. So I think to as far as understand, is this is still being rolling out in Niu Jia and they plat for roll out that other cities. So what’s your take on this measure and how do you see the impact on the - on your business, on the listing business and where do you think other large agencies will follow that practice? Thanks.
Okay. First, Niu Jia is our very good partner for years. And I think they have their own strategy but when things cannot be changes that currently their own website couldn’t host so many leads especially in Asian-wide. So I am not sure what you said that they stop doing that. From our side, we didn’t see that signal. Actually in some cities, we are still - we continue to cooperation and to some extent, we further intense our cooperation with them.
The second one is that we - our strategy to maintain our position on the online information market I think at this position we’ll not be changed because Chinese market you know the system is very different from the States, because we have for one buyers or one sellers, they can actually hire most, a lot of agents to help them to sell their housed. So this market side that the best way for although agents to find clients online. So I don’t think China only needs only one online website especially for Leju, we already - we are second party - third party information platform which is more wider and I think more acceptable to the home consumers. So I think from - especially Niu Jia in Shanghai further actually intense our confidence to building very fair and every efficient online information platform.
Is that okay?
[Operator Instructions] Your next question comes from the line of Nora Zhang of Merrill Lynch. Please go ahead.
Good evening, management. Thank you taking my questions. I have two questions. The first one is regarding the coupon business, we’ll see the property policy tightening taking place is some other cities Tire 1 and 2 cities. Could you give us some color on the impact on the coupon business in the coming quarters?
And my second question is about the Qiang Gong Zhang platform. Could you give us some color on the expected investment in 2016 in this platform and the addition plans are? Thank you.
Okay. For the first question, it is true that our government policies in first tier cities but cities are very different, Beijing, Shanghai and Shenzhen. I think the government actually adopted very different policies. For Shanghai, the government actually released a lot of solid policies. In Shanghai - in Beijing markets actually the policy didn’t change. And the Shenzhen market actually just it’s kind of sentiment policy rather than very restrict policy. So I think the market actually effects from these policies are very different. From our side, actually we see that trading volume of these three cities are very different. For Shanghai actually we see the loading is going down. For Shenzhen, I think the volume decreased rate is less than Shanghai, but in Beijing is - I don’t see Shenzhen is very stable. So it’s very different.
But on the other hand, we see that the market in the second tier cities actually a quite positive, especially some capital cities. So for the home market, actually it’s quite mixed from our coupon business.
For the second question is that for Qiang Gong Zhang platform, I think for this year, our focus is how to generate enough independent contractors how coming to our platform and help more consumers to have their home furnishing contracts run through our platform. So it is still on development stage. And I think revenue is not important currently for us but the popularity between the contractor and the end users are very important especially how many deals can be concluded through our platforms is very important. We are actually - we are receiving quite positive signals from this platform. We see more and more contractors. Currently actually we have already more than 20,000 contractors on our platform and they are actively using this platform. So - and we will still allowance a lot of innovative products like Qiang Gong Zhang, just like that you decorate first and then pay later, new products through our cooperation with some financial institutions. So we will further invest in this market and I think our model is quietly now that innovative to actually to change the current value chain of the home royalty market.
Thank you, Yinyu He, very helpful.
[Operator Instructions] Your next question comes from the line of Ming Xu of UBS. Please go ahead.
Hi, Yinyu He, I have another two questions. The first is on your traffic and margins, so I understand you spent some marketing expense in promoting your own leju.com website in Q12, so could you give out some color on the traffic contribution from leju.com compared to the other sources like SINA House and others? Could you break down by both mobile contribution and also PC contribution?
And also going forward - sorry for the rest of the year, so how do you see the margin trend, do this still need to invest, spend a lot in promoting this - the promoting website as spend on other the causes? And I have another follow-up question on the property market. Thanks.
Okay, for the first question, actually we spend little marketing dollars in promoting the mobile site leju.com rather than the pc.com. Actually we see that the mobile traffic from leju.com is increasing very fast. And currently our mobile traffic accounts for almost 60 to 70 lot that of our total traffic. And we didn’t actually abandoned house.sina website. We still keep it running. So on the PC side, we have two websites, one is house.sina.com and the other is leju.com. Of course the services on these two websites are the same. That’s the first one.
And later, I think we will continued out cooperation, especially product cooperation and news cooperation with automobile operator - mobile app operators like UC, like Total and even more operators. This is also a very attractive way for us to attract users especially compared to those hide traffic. I think they are more effective.
We will - this year, we will increase resources to promote our brand real estate brand and also we will increase our investment in the Qiang Gong Zhang platform. I think these products will be our major investment on the market recognition and branding.
Okay, thanks. Just a quick follow-up, so you mentioned that mobile account for 60% to 70% of total traffic. So may I ask out of the total mobile traffic, how much of that come from leju.com?
Close to 90%.
90%. Okay, okay, thanks. So the second question is regarding the property market, you mentioned in your prepared remarks that you expect some uncertainty in the property market in the next few quarters. So could you elaborate on that specifically I think you just described the market in the Tire 1 cities, so what about the trend in the Tier 2 cities and Tier 2 cities so - and the impact on your business? Thanks.
Yeah, yeah, yeah, where we mentioned uncertainty, I think this is mainly from the second tier cities, because I think the first tier cities, the policy is quite certain actually all the - actually all the policies that is going to shift already gave. So the uncertainty is coming from second tier cities because there a lot of capital cities, the market is quite active. So we are not sure that what kind of policies that government should give. But overall, we don’t think it’s very pessimistic because the overall Chinese economy requires a healthy real estate market.
So from the business level, I think any policy change, it could give us some impact. But we are not sure what kind of policies.
Thank you, Yinyu He.
[Operator Instructions] There are no further questions at this time.
Yeah, this concludes today’s call. If you have any follow-up questions, please contact us at the numbers or e-mail provided on our earnings release and our website. Thank you.
That does conclude our conference for today. Thank you for your participating. You may now disconnect.
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