Leju Holdings Ltd (LEJU) Q4 2020 Earnings Call Transcript

Leju Holdings Ltd (NASDAQ: LEJU) Q4 2020 earnings call dated Mar. 26, 2021.

Corporate Participants:

Michelle Yuan — Deputy Chief Financial Officer

Yinyu He — Chief Executive Officer

Li-Lan Cheng — Acting Chief Financial Officer

Analysts:

Marco Rodriguez — Stonegate Capital — Analyst

Tianli Wen — Blue Lotus — Analyst

Presentation:

Operator

Hello, and thank you for standing by for Leju’s Fourth Quarter of 2020 Earnings Conference Call. [Operator Instructions]. After management’s prepared remarks, there will be a question-and-answer session. [Operator Instructions]. 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.

Michelle Yuan — Deputy Chief Financial Officer

Hello, everyone, and welcome to Leju’s Fourth Quarter 2020 Earnings Conference Call. Today, we will update you regarding our financial results for the fourth quarter ended December 31st, 2020. 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 fourth quarter and full year 2020. 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 read you 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 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, Geoffrey He.

He zong, please go ahead.

Yinyu He — Chief Executive Officer

Thanks to everyone for joining us on today’s call. China’s new housing market experienced mild growth in transactions for the full year 2020, as a sharp decline at the beginning of the year due to the COVID-19 epidemic was followed by a substantial recovery later in the year. As developers increasingly recognized the importance of digital marketing, our online advertising services saw strong growth, while our e-commerce services turned in a steady performance.

We continue to promote our digital marketing capabilities and develop innovative tools on our online transaction platform in the fourth quarter. Our content production systems are getting stronger as we continue to adopt AI technologies to generate real-time [Phonetic] formatted content. And our multiple channel networking operating or MCN model has become wider and deeper, generating more traffic and a better user service conversion rate. All of these factors will help drive the long-term growth of both our online advertising and e-commerce businesses.

In the fourth quarter, we held a series of successful online promotions, including our Double 11 and the Double 12 to RMB10 billion subsidy promotions, our live broadcasting festival for primary and the secondary brokers, and our annual gala award ceremony for China’s property-related industry. These promotions and the activities further enhance our brand recognition and boosted our media influence.

Meanwhile, thanks to our top-down approach, our industry coverage further improved. Among China’s top hundred developers, we have reached a strategic agreement with over 80 developers in the fourth quarter. In 2020, we held a total of eight well-received promotional events, kicking off with our Online Sales Office during the Chinese Spring Festival. These activities help us to make — to take the advertising service to the next level, and supported steady growth for our e-commerce services, significantly improving our industry coverage and overall service level.

In 2021, leveraging our strategic cooperation with Alibaba and E-House, we will seize new opportunities in digital marketing, roll out new advertising and e-commerce services, and ramp up our business scale. We will continue to optimize our [Indecipherable] operation system based management model, increase our efforts in attracting top talents, improve management and operational efficiency, and increase profit margins to provide a solid foundation for our future growth.

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

Li-Lan Cheng — Acting Chief Financial Officer

Thank you, Geoffrey. Good morning and good evening everyone. For the fourth quarter of 2020, we recorded total revenues of $230.4 million, a 2% increase from the same quarter of 2019. Our e-commerce services revenues for this quarter decreased by 8% to $170.1 million as a result of a decrease in the number of discount coupons redeemed, and the increase in the average price per discount coupons redeemed.

The e-commerce services contributed 74% of our total revenues this quarter. Our online advertising services revenues for this quarter increased by 43% to $60.1 million as a result of an increase in property developers’ demand for online advertising. Online advertising services contributed 26% of our total revenues this quarter.

Our listing services revenues for this quarter decreased by 19% to $0.2 million from the same quarter last year, as a result of a decrease in demand from secondary real estate brokers. Our cost of sales for this quarter increased by 34% to $17.8 million from the same quarter last year, primarily due to increased cost of advertising resources purchased from media platforms related to our online advertising business.

Our selling, general and administrative expenses decreased by 1% to $202.6 million, from the same quarter last year. The decrease was primarily due to decreased labor costs, partially offset by increased advertising expenses related to promotional activities for the period of 2020. Income from operations was $10.1 million for the fourth quarter of 2020, an increase of 4% from the same quarter of 2019.

Net income attributable to Leju shareholders was $6.1 million for the fourth quarter of 2020, an increase of 36% from the same quarter of 2019. Non-GAAP income from operations was $13.4 million from the fourth quarter of 2020, a decrease of 4% from the same quarter of 2019. Non-GAAP net income attributable to Leju shareholders was $8.8 million for the fourth quarter of 2020, relatively flat compared to the same quarter of 2019.

For the full year 2020, we recorded $719.5 million in total revenue, a 4% increase from last year — from 2019. Our e-commerce revenues were $547.9 million for the full year 2020, a slight increase from 2019 as a result of an increase in the number of discount coupons redeemed, partially offset by a decrease in the average price per discount coupon redeemed.

E-commerce services contributed 76% of total revenues for the full year 2020. Our online advertising revenues contributing 24% of our total revenues increased by 19% to $170.8 million for the full year 2020. Due to an increase in property developers’ demand for online advertising, while our listing revenues decreased by 48% to $0.8 million as a result of a decrease in demand from secondary real estate brokers for the full year 2020.

Income from operations was $24.1 million for 2020, an increase of 36% from 2019. Net income attributable to Leju shareholders was $19.3 million for 2020, an increase of 68% from 2019. Non-GAAP income from operations was $38.3 million for 2020, an increase of 13% from 2019. Non-GAAP net income attributable to Leju shareholders was $30.7 million for 2020, an increase of 25% from 2019.

As of December 31st, 2020, our cash and cash equivalents and restricted cash balance was $285.7 million. Our net cash flows provided by operating activities for the fourth quarter of 2020 was $11.8 million, mainly attributable to non-GAAP net income of $9.9 million, a decrease in amounts due from related parties of $8.6 million, a decrease of deferred tax assets of $11.1 million, partially offset by a decrease in amounts due to related parties of $16.3 million.

Looking ahead, we estimate that our 2021 total revenues will be approximately between $755 million to $790 million, which represents an increase of approximately 5% to 10% from last year — from this year. Please note that this forecast reflects our current and primary — preliminary view, which is subject to change.

This concludes our prepared remarks. We are now ready to take our questions. Operator, please go ahead.

Questions and Answers:

Operator

Thank you. [Operator Instructions]. First question comes from the line of Marco Rodriguez from Stonegate Capital. Please go ahead.

Marco Rodriguez — Stonegate Capital — Analyst

Hi, everybody. Thank you for taking my questions. I was wondering if maybe you could talk a little bit more about and provide an update on the Alibaba, E-House, the Tmall and ETC platform, kind of maybe talk about how that has been progressing versus your expectations? And I know you mentioned in your prepared remarks some opportunities that you were looking at in terms of optimizing performance, improving management and operational efficiency. If you can kind of provide a little additional color on what those might look like in the coming year, that would be helpful. Thank you.

Yinyu He — Chief Executive Officer

Thanks for your questions. For a strategic cooperation between E-House and Alibaba is, I think they are trying to build a new space on the very popular e-commerce platform in China, in the real estate industry, and I think this is both for the primary and secondary house market. For us, I think because the cooperation is not only on the advertising side or the trading side, they are trying to, because of the new platform, we see new opportunities for developers to use this new platform to facilitate their digital marketing infrastructure and based on the digital — new digital infrastructure, developers can do more digital marketing.

And so, we see atleast there are two levels of new opportunities. The first one is how to help developers to build up their digital infrastructure on the new platform of Tmall Housing and the second is that, after they have the new infrastructure on that Tmall, how to operate them. I think if the operating system is — includes how to advertise their products, how to upload their house on that platform, how to attract potential buyers and even how to close the transactions online.

So these two levels we see potential or opportunities. For Leju, I think Leju is a very strong service provider to Tmall housing and this is also very beneficial to Leju to enlarge its business scope.

Marco Rodriguez — Stonegate Capital — Analyst

Understood. Excuse me. And I believe we spoke about this the last quarter where the online advertising platform, that had been created here and you’re starting to see some benefits from — is obviously attracting developers and with the coronavirus this last year, it made it more important for the developers to use an online platform given some of the lock downs and what have you.

Can you maybe talk about your current expectations, and I know the last time you mentioned this in last call, earnings call that there would possibly some — be some cannibalization of the e-commerce revenues, just given the fact the developers typically choose one channel versus the other.

Yinyu He — Chief Executive Officer

I think for the business model of Tmall Housing, I think it is — it is still early for us to talk about it, because basically it’s the cooperation between our parent company and Alibaba. But for Leju, we think that we already see — actually we already realized some benefits from the initial cooperation from the advertising side.

And the second step we think that we can — we can also clearly see after advertising, there will be some benefits from the trading side. It is a new platform, as I said, and this platform is different from previous other content driven platform or video driven platform. It is a trading platform. So we think they will create a lot of new models for developers, and also for developers they have their own digital infrastructure — on this platform, I think they are more active to attract users and to close the transaction in that platform.

So I think a lot of potential opportunities on the trading side. So basically, it’s a bit too early to mention details about the business model. Sorry for that.

Marco Rodriguez — Stonegate Capital — Analyst

Understood. Very helpful. No, that’s okay, that’s very helpful. Appreciate it. And then two last quick questions from me, maybe if you can kind of update us on your thoughts for the Chinese real estate market, your — sort of your expectations going into this fiscal year. And then, if you can also kind of paint a picture as far as what sort of major activities in timing that you might have planned for the next, let’s say six months for your platforms? Thank you.

Yinyu He — Chief Executive Officer

Okay. The first trend is that, because of the restriction policies adopted by the government, that we think the competitive scope [Phonetic] of the developers will significantly change in this year. I think more and more developers will face their mapping change, because you know the offline channel, they took up so many marketing dollars from developers and squeezed their profits.

So, a lot of developers are thinking how to use digital marketing to change the situation. So that’s the first trend. The second trend I think, you know, a lot of big developers they’re going to actually organize their own digital marketing teams to try to compete with the offline channel teams.

So we think from these two trends, the demand for the digital marketing will be increased significantly this year. For Leju, I think we will, I think three points — three important points, first one is, we will continue to strengthen our media influence, which is actually the core of Leju, and the second one is we will invest more technologies or more capitals in the content production.

This will help us to generate more leads to the sales. And the second one is we tried to develop our new e-commerce models, previously our e-commerce model is based on, as you see is the coupon. I think based on the new platforms of Alibaba and E-house, and I think we will create more e-commerce models.

Marco Rodriguez — Stonegate Capital — Analyst

Excellent. And any sort of major activities you might be planning for the next six months or so to drive revenues for you guys?

Yinyu He — Chief Executive Officer

Yeah, actually we have. Now we’re actually doing the online housing fair, it is an ongoing event and covering about 100 cities. And we already have more than 200 — sorry, 2,000 projects online. And we will also do our [Indecipherable] and that’s the July 18 — June 18 festival, which is create — was created last year. It is a traditional e-commerce festival that we use in the real estate industry. And this is also a very important point for us.

Marco Rodriguez — Stonegate Capital — Analyst

Excellent. Thank you very much for your time. I really appreciate it.

Yinyu He — Chief Executive Officer

Thank you.

Operator

Thank you. [Operator Instructions]. We have our next question from the line of Tianli Wen [Phonetic] of Blue Lotus. Please go ahead.

Tianli Wen — Blue Lotus — Analyst

Hello, management. [Foreign Speech].

I will translate in English. So thank you for taking my question. My question would be in the balance sheet, I see the customer deposit number and the advance from customers number changed quite a bit. Can you help us understand from a business context how the number changed? Thank you very much.

Li-Lan Cheng — Acting Chief Financial Officer

Okay. This is Li-Lan. I’ll answer that question. Yeah, these are two — actually, the names sounds similar. So that’s probably the confusing part. So customer deposit here in this item, customer means, developers. That’s our developer clients and this is a deposit we made — we paid to this developers. That’s why it’s on the asset side.

So it’s — for some of our e-commerce projects, we actually pay the advance deposit to win the projects. And then once we finish, they pay us back. So it happens to a small minority of our projects, usually involves a large chunk of units and we see — when we view these project brings another economics to justify this kind of a commitment.

Deposit from customers is, here the customer means a homebuyer, so it’s a retail individual home buyer. And so this represents amounts they pay to participate in our e-commerce activities, they buy the discount coupon. But there may be a timing gap between when they buy the coupon and when they convert it into a housing project contract before we can recognize as revenue. So that that’s the portion that’s called deposit by customer.

So these are two very different things and they have a different dynamics.

Tianli Wen — Blue Lotus — Analyst

Yes, thank you. If I may ask on a subsequent one. There are several reason for the change, seems quite startling, quite typical [Phonetic] change.

Li-Lan Cheng — Acting Chief Financial Officer

While the cost of the deposits is not surprising, so that will fluctuate quite a lot, because like I said, it’s — in any given year or given quarter it involves a relatively small number of projects. But the individual amount could be pretty big. So you could be — we’re talking about on the order of tens of millions of RMB or even over RMB100 million for a single project.

So when one project starts, if we decide to pay or when we — when the amount gets returned, that can result in a fairly substantial fluctuation from quarter to quarter. Whereas deposit from customers usually shouldn’t fluctuate that much, because it’s — there is always a time gap between them paying deposit and converting to purchase, unless there is a — in hardly unusual cases where a small number of large scale projects launch a very concentrated marketing campaign and we may have a large number of customers concentrated in buying or paying for coupons within a very short period of time, and if it so happens that a quarter end before they convert, then you may see a fluctuation from quarter to quarter.

But that’s normal, that kind of fluctuation.

Tianli Wen — Blue Lotus — Analyst

Thank you very much. Thanks very much.

Li-Lan Cheng — Acting Chief Financial Officer

Well, thank you.

Operator

Thank you. [Operator Instructions]. No question as of the moment, and I’d like to hand the conference back to the management. Please go ahead.

Michelle Yuan — Deputy Chief Financial Officer

This concludes today’s call. If you have any follow-up questions, please contact us at numbers or emails provided on our earnings release and on our website. Thank you.

Operator

[Operator Closing Remarks].