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58.com Inc. (NYSE:WUBA)
Q2 2018 Earnings Conference Call
Aug. 16, 2018, 8:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day and welcome to the 58.com Second Quarter 2018 Earnings Conference Call. All participants will be in listen-only mode. (Operator Instructions) After today's presentation, there will be an opportunity to ask questions. (Operator Instructions) Please note this event is being recorded.

I would now like to turn the conference over to Rene Vanguestaine. Please go ahead.

Rene Vanguestaine -- Investor Relations

Thank you, Andrea. Hello, everyone, and thank you for joining us today. The company's results were released earlier today and are available on the company's IR website at ir.58.com, as well as on PR Newswire services.

On the call today from 58.com are Mr. Michael Yao, Chairman and Chief Executive Officer; Mr. Hao Zhou, Chief Financial Officer; and Mr. Wei Ye, Deputy Chief Financial Officer. Mr. Yao will discuss 58.com's business operations and company highlights, followed by Mr. Zhou, who will go through the financials and guidance. They will all be available to answer your questions during the Q&A session that follows.

I remind you that this call may contain forward-looking statements made under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements are based on management's current expectations and current market and operating conditions and relate to events that involve known or unknown risks, uncertainties and other factors, all of which are difficult to predict and many of which are beyond the company's control, which may cause the company's actual results, performance or achievements to differ materially from those in the forward looking statements.

Further information regarding these and other risks, uncertainties and factors is included in the company's filings with the U.S. Securities and Exchange Commission. The company does not undertake any obligation to update any forward-looking statement as a result of new information, future events or otherwise, except as required under law.

It is now my pleasure to introduce Mr. Michael Yao. Mr. Yao, please go ahead.

Michael Yao -- Chairman and Chief Executive Officer

Thanks, Rene, and thanks everyone for joining. We have a great second quarter. I would like to quickly go over some highlights first. Our revenues exceeded the high end of our guidance, while our sales and marketing headcount decreased 4% year-over-year. This shows a substantial improvement in efficiency. Our app traffic continue to grow quite rapidly. A respected third-party type ranking company ranked us No. 2 in terms of app growth among all the major apps in China during the quarter.

Our engagement metrics are improving too. Users are communicating more among themselves with the tools of our platform. Users are spending more time, because of better content, more pictures, 3D images, video and even live streaming. Some of the content is done by our editorial teams, some is UGC; audios, AI, big data technology.

Our margins have greatly improved since we acquired Ganji. But our margins this quarter were down slightly compared to the same period last year. This is because of a branding campaign we launched for Zhuan Zhuan, our secondhand used goods platform, and other marketing expense for 58 Town [ph] to further penetrate into rural areas. We are extremely happy in the part of (inaudible) have achieved so far. Even though the revenues generated is immature and negatively impact our overall margins, the user traffic has grown very rapidly.

We are focusing on user penetration and data monetization [ph] at this stage. We believe this investment will generate much big returns going forward in a similar way (inaudible).

I'd like to also share with you my longer-term vision and the strategy for the company. First, platform scale and growth are still mostly important. Typically, the big classified the platform are the better and the more effective they are. This creates a natural network effect. Revenues growth has become difficult and expensive for many. We continue to find new ways for growth, such as spending into lower tier cities. 58 Town is now commonly considered as a best practice case. The (inaudible) very wide mobile proliferation, mobile internet and reach and coverage to provide a valuable information platform for people in the rural areas. Zhuan Zhuan is another example. Through innovation, focus and some branding, we have more users on our used goods platform completing transactions, and they purely look for information.

Look at the big picture, together is viewed as a smaller brand (inaudible). But in typical classified categories such as housing and the jobs, we are all of the leading in the field. There is lots of room to grow in terms of users. We will continue to facilitate user growth and grow our platforms through skills, through product innovation and, in fact, branding campaigns.

Given that there is still a lot we can do to improve user experience and engagement. Classifieds is evolving into more than just an information platform. We see huge potential to leverage technology on our platform to make such a result and the product dimension more intelligent. You can also use big data and AI to make communication tools and the multimedia better. Looking for a job, a home, a car, or even a moving company is a very, very important efficiency. We have clearly become the largest platform in terms of quantity of information, but we can generate even more commercial value if we can make use the right information or services in this time and make easily and better efficiency.

We are also looking to provide more service, mostly online rather than just information. For example, Anjuke is opening more service for real estate agents, such as SaaS, trading, photos of real estate, and even transactional support. We are exploring ways to provide service beyond just viewing and are planning for jobs online, such as job training, assessment, networking opportunities, insurance et cetera. By positioning our platform more broadly for self users, we used to generally find a whole new world of things we can do by leveraging technology and the efficiency.

Lastly, monetization is important and the potential is still huge. Our subscription-based business paying members has grown to 12.9 million in the second quarter. This is more than 10 times the number we had five years ago. The market potential for our service is still massive. There are still tens of millions of SMEs in China, many of whom mid-to-higher or marketed locally. The also low secondary housing market is still smaller than primary home, and we expect this to change in the years to come. This will create an even big addressable market for us.

When it comes to pricing, we have been very modest overall, because our focus has traditionally been on the growing payment users. So we believe there is still a lot of room to improve monetization, especially when traffic continues to grow at a huge space. We believe we will continue to grow over the longer term as we offer more value to our users. Our margin will also improve as the scale of our platform and the efficiency increases.

To ensure our longer-term success, we will continue to invest in developing technology, attracting and retaining the best talent, and the marketing. So, for instance, in second half, we will spend more on advertising across our brand and continue to hire build team [ph]. I am confident in our strategy and ability to create longer-term value for all our shareholders. Thank you.

Hao Zhou -- Chief Financial Officer

Yeah. Thanks, Michael, and this is Zhou. Thanks again everyone for joining. I'll walk you through our second quarter 2018 financials. Total revenues were RMB3.4 billion, an increase of 32% year-over-year in RMB terms, above our guidance of RMB3.1 billion to RMB3.2 billion. The sequential increase in our growth rate was largely due to the fact that Q1 had Chinese New Year, which is 19 days later than 2017. So, Q1 was more difficult to compare with 2017, whereas Q2, we didn't have this irregularity.

Our gross margin was 90% compared with 90.9% during the same period last year. Operating expenses were RMB2.3 billion, up about 32% year-over-year. Within sales and marketing expenses, advertising accounted for RMB853 million, up about 64% year-over-year following the launch of brand campaign for Zhuan Zhuan, our used goods transaction platform. The campaign has been overall successful so far, and it's helping to accelerate user growth in the online used goods segment, which we believe is still in its infancy with very low penetration rate.

Excluding advertising, the majority of other operating expenses were largely headcount related expenses. However, at the end of Q2, our headcount was about 22,000. Within that, sales and customer service and marketing staff accounted for roughly 16,000, which was down of about 4% year-over-year. Excluding advertising, therefore all other expense lines are growing at a slower rate than revenues, including the non-advertising sales and marketing, R&D and G&A expenses, implying a big improvement in overall efficiency of the operation.

In Q2, GAAP and non-GAAP operating profit grew 27.6% and 24.1% respectively from the same period a year ago. Other income in Q2 was RMB94.1 million compared with other income of RMB41.5 million in the same period of 2017. GAAP and non-GAAP net profit grew 27.1% and 23.6% respectively from same period a year ago.

In the interest of time, I won't go through the first half results in the same level of details, but I would like to highlight some key financials. Total revenues for the first half were RMB5.9 billion, an increase of 29% year-over-year in RMB terms. Operating expense during the first half tell roughly the same story as Q2. Other than advertising, all other major operating expense lines grew at a slower rate than that of revenues. Advertising expenses increased 48.4% due to the increasing spending for Zhuan Zhuan and other 58 brands, such as 58 and Anjuke. Overall, we're happy with the results of this increased advertising expenses.

In the first half, GAAP and non-GAAP operating profit grew 52.9% and 39.3% respectively from same period a year ago. GAAP and non-GAAP net profit grew 66.1% and 46.4% respectively from same period a year ago.

Now on to the guidance, we expect third quarter 2018 revenues to be between RMB3.45 billion and RMB3.55 billion, a 27% and 30% year-over-year growth rate respectively. These estimates reflect the company's current and preliminary view, which is subject to change. The government's policies with respect to housing continues to focus on controlling the real estate prices. With this in mind, we expect housing market transaction levels, especially in Tier 1 and Tier 2 cities to remain quite low. This may cause a reduction in our aging customer numbers in Tier 1, Tier 2 cities.

We are actively pushing our businesses into lower tier cities to increase more market share there to offset the softness of Tier 1, Tier 2 cities. China's macro economy situation is having limited negative impact on our categories outside of housing. China's overall service sectors continue to account for a larger -- increasingly larger part of economy which fits very well with the local services nature of our platforms, and then demand for jobs, used car, used goods and other local services categories continued to remain quite strong. The fact that consumers and business users are increasingly engaging more online, the trend will continue to benefit us as well.

With that, I'd like to open up the call for Q&A. Operator, please begin.

Questions and Answers:

Operator

We will now begin the question-and-answer session. (Operator Instructions) And our first question comes from Wendy Huang of Macquarie. Please go ahead.

Frank Chen -- Macquarie -- Analyst

Hi, Yao and Zhou, this is Frank Chen on behalf of Wendy Huang. We basically have three questions. The first one is about housing category. How should we look at our housing revenue growth going forward? And also can management help to break down the house category revenue by new home, secondary home and rental market?

And the second one is on Zhuan Zhuan. We had noticed that after Zhuan Zhuan is added to -- into Wechat Wallet in earlier July. If traffic grow exponentially, can management share some more color with us about Zhuan Zhuan's latest GMB trend, and our monetization plan on Zhuan Zhuan?

And second -- third one is on the guidance. We notice that the guidance for third quarter is pretty strong. Can management share with us the driver behind this set of strong guidance? Thank you. That's all my questions.

Hao Zhou -- Chief Financial Officer

Yeah, thanks, Frank. I will take probably the revenue-related questions, and Michael can talk about monetization on Zhuan Zhuan platform.

For competitive reasons, we don't disclose revenue growth rates by the different sectors. But I can share with you that we're still growing our housing revenue. As I said in my prepared remarks, Tier 1, Tier 2 cities are difficult, because we have pretty big market share there already. However, the secondary transaction volume continues to be quite low. And so, therefore, the commission dollar of these big cities are not increasing. So, therefore, the agency customers are struggling somewhat. So the market definitely is not as hard as 2015 and 2016. So it's more stable now.

So, we're depending on price quite well, but it's increasingly hard for us to get more agent customers. So the growth will come from Tier 3, Tier 4 cities where there are less negative policies, and we traditionally have less market share. So with more focus and more resources allocated to those cities, we can grow faster. So we do -- we are increasing our agent customer numbers there, and the overall commission dollar is -- in many respects it is also increasing. So that benefits us as well. So overall, we are still able to grow our housing revenue, but obviously not as fast as back in 2015 and 2016 when the market was good.

Now with that, I also want to reinforce our message that we still like the housing sector, because -- especially the secondary and rental business, because that -- your third question related to the split of housing revenues, which I can share a bit is, you know, we are a majority secondary player. Okay, majority of our business in housing is secondary housing, OK, and with low -- smaller percentage, smaller portion from primary homes. But the secondary in China, in the total market volume transaction point of view, is too smaller than primary. So the Chinese housing real estate market is going through a developing phase where more new homes are being built. And so, from the trajectory of all other more developed countries, when you go through that stage, you end up in the future having more secondary home transaction volume.

So, I think, it's being the leader of the secondary home transactions is a very good place to be, because the overall market over time will get bigger, no doubt about that. So, even though there may be short-term policy-related fluctuation that's impacting our growth rate from year-to-year, but the longer-term trend of the market being bigger and our potential revenue being bigger, of even our customers being bigger number is very clear.

So, I think, this is very -- still very attractive segment. We have a good market -- very good leading market share. Compared to SouFun, I think we're gaining market share in terms of online housing market. So I think it's a great place to be in and we have good positions. Okay. And maybe Michael will talk about monetization of Zhuan Zhuan.

Michael Yao -- Chairman and Chief Executive Officer

(Foreign Language)

Hao Zhou -- Chief Financial Officer

Yeah, briefly in English, Zhuan Zhuan, we feel very good about the platform. It is the used goods trading platform. It's probably already the top five of e-commerce platforms in China, if you put used goods and even new goods together. So I think it's very sizable in terms of traffic. Obviously, it's growing very fast as well, probably faster than most other more established platforms as well, because of (inaudible) sort of history, and particularly after Q2, where we spent more on advertising on brands and also on the Wechat Wallet access, which provide additional momentum on users.

So it's very sizable already and it's growing very fast. So we'll continue to invest on advertising technology, et cetera to further grow the platform. We believe that used goods online is still very under-penetrated. When compared with Mercari, a recent IPO in Japan, used goods -- the biggest used goods trading platform in Japan, we believe that the potential is a lot, you know. And Japan they have achieved 20 million MUs [ph] already out of maybe 200 million people, but we have 1.4 billion in China. And so clearly we have a lot of growth opportunity.

And if we compare the absolute traffic and order numbers, Zhuan Zhuan may have been very close or even bigger than Mercari already. But just that we have less revenue and transactions. So that will come, that will catch up over time, we believe. So, it's not -- in terms of monetization, obviously, we are much behind Mercari, because they have been around longer, and it's generally a bit more difficult to monetize in China. And when you grow the platform, typically you focus on growing the scale first and make sure you are a clear leader before you got to monetize, but we will plan to explore some monetization in the second half of next year -- second half this year and through next year, so that we can be more sustainable in terms of reinvest the revenues into the growth in the longer period. So, bottom line is, I think we are very happy with the Zhuan Zhuan growth so far. And we will explore the monetization and we are very happy with our investments so far made in Zhuan Zhuan.

Frank Chen -- Macquarie -- Analyst

Okay.

Operator

Our next question comes from Thomas Chong of Credit Suisse. Please go ahead.

Thomas Chong -- Credit Suisse -- Analyst

Hi, management. Thanks for taking my question. I have two questions today. My first question is actually about the KPI for our rural initiatives at 58 Town. So can management share some KPIs for this app over the -- like the coming years?

My second question is actually about what are the sales and marketing channels to acquire new customers? So, how are management viewing the trend in customer acquisition costs? Thank you.

Hao Zhou -- Chief Financial Officer

Yeah, I will take that. 58 Town, Wuba Tongcheng [ph], currently we have penetrated into more than 10,000 towns by end of July this year. And overall, in China, there may be around 40,000 towns. So, I think, we're about 25% covered with last 12 months. So, I think, it's very rapid growth that we have seen in the last 12 months. We feel very good about the progress, we feel very happy about the team, and we hope to increase the coverage to more than 20 towns, more than 50% covered.

And just to keep things in perspective, we estimate that there might be around 400 million people in all these small towns. Let's remind everyone that the urbanization percentage in China is a little bit less than 60%. So it's important to deliver -- to acquire users in the cities, which is obviously huge, but in the outer cities there's a huge amount of people too. And so that's where the new opportunity is, that's where we were doing 58 Town with. And we find that the demand for these people in the countryside or rural areas is very similar. They look for jobs, they move around, they look for homes to stay, they want to buy cars, and they look for services locally, and there was very little incumbent. There was no local newspaper, there was no sort of information portal established as in the cities. So this is a huge opportunity. And the good news is that most of these guys have, mobile Internet, have WeChat.

So we do have the infrastructure already laid out by other companies, and we need to take the application there. And you asked about how do we find new users. I think we found a pretty good way. We identified a partner in each of these towns and gathered information. We have various incentive schemes to keep people motivated to grow the initial sort of fan base, how to grow out of there, and then generate good content. And we teach them what should be good content, what should be the quantity and what should be the split of subjects, and we provide them with great tools and app basically.

So all of these guys have our app that makes things easier. They don't need to be an IT expert to get this thing going in WeChat.Net. So we made everything a lot easier and we -- because we're very familiar. It's a very -- let me say -- know-how that how 58 was generated 13 years ago in big cities like Beijing and Shanghai. It's just not we're doing it in different areas, in small towns on a WeChat based ecosystem. So I think we're having very good success and ultimately there is lot of revenue opportunity in 58 rural as well, because when you -- when we connect consumers and merchants, we clearly are delivering commercial value, and then there is revenue to be made down the road. Not priority for now, it's only the year one, but I think we're having very good success in the 58 Town initiative.

Operator

Our next question comes from Hillman Chan of Citi. Please go ahead.

Hillman Chan -- Citi -- Analyst

Hi. Good evening, management. Thank you very much for taking my questions, and congrats on a very solid quarter of results. And I have two questions. The first one is on competition. So for Homelink and AKA, they are stepping up the efforts, and also told how it just rolled out the (inaudible). How management see the rising competition there, and what do you think of the landscape of the online property listing in two to three years from now?

And then my second question is on the headcount. Could you update us on the headcount and also the sales headcount breakdown, and also the target this year and next year? How should we think about the sales efficiency in the longer term with the help of technologies and certain product enhancements? Thank you.

Michael Yao -- Chairman and Chief Executive Officer

I will take the first question about the housing. (Foreign Language)

Hao Zhou -- Chief Financial Officer

Yeah, on competition on housing, yeah, we noticed what Lee and John Becker started to do about three or four months ago, sort of so-called opening up the platform and inviting other agents, and they are spending on advertising as well. But, you know, we -- generally we welcome competition. Sometime competition really makes us stronger. But what we have seen in the last three or four months is that the impact was -- the negative impact is quite immaterial.

First of all, what they had done with these two apps is offering very similar user experience. So we kind of don't understand the logical differentiation there. And so, therefore, what you find is when BECKER is growing in the traffic, and Homelink, the original app is losing traffic, because the users are basically shifting from one to the other, and the content is the same. So there's no point in looking at both.

So, in aggregate, if you add up Homelink and the BECKER, the two apps together, and compare that with the 58 housing app families, right, which includes 58 and Ganji and Anjuke, it's very small, it's less than 20% as far as we can see. And that has not been changed so much after Homelink is spending very aggressively in the market. So that is sort of the results.

And also from a revenue point of view, or from a paying agent point of view, we have not noticed material reduction of agents or agents moving from our platform to theirs as for now. So that's why I can see that revenue wise, we're sitting quite well in this quarter and including next quarter as well, even though we don't disclose the segment, but overall housing is doing quite well, I would check and tell you. So that's the reality. So, in China, you always will have competition from incumbent ones and from new ones. But I think, ultimately, it comes down to a platform, how well we can improve our product; how we can add value to our users and agents. If we continue to do the best thing on our platform, I think we'll be doing fine. So that's on the housing competition point of view.

On the headcount, Hillman, we ended up with 22,000 by the end of Q2, which is very similar to last quarter or a year ago. So overall, the headcount has been, over the several quarters, quite stable. Within that R&D is increasing, as we have always been quite open to hire more, and Michael suggested earlier as well. And sales and marketing is actually slightly lower, it's about 4% down versus a year ago, which in absolute term -- absolute number wise is about 16% total -- 16,000 sales and marketing and customer service.

So, this is quite remarkable, because to keep things in perspective with 4% less sales and marketing people, we deliver 32%, 33%, right. I've got exact number of revenue growth. So, which means that the per person efficiency has increased a lot, which is driven by the better management, obviously, but also a lot of technology improvement behind the scene in terms of automating the process, encouraging merchants to be more aligned, developing chat box to replace them with the customer service.

And so -- so there is -- it's great work done so far, and we believe there is a lot of potential -- you asked about 2018 and 2019. I think, at least, over this year-end, things will be quite stable. There may be a few hundreds up and down here and there, but overall it will be the same that we always welcome more R&D teams. With a lot of technology projects, we've a huge amount of ideas and we need more talent, which we believe that will drive the growth in future. The sales and marketing teams will be fairly stable. And there will be areas where we need to add in lower tier cities, et cetera, but I think there will be also other areas we can rationalize our teams. And so, overall, maybe stable.

If you look out to further years, I can tell you that may be similar trend. I think we'll benefit from bigger R&D teams and better R&D teams, and so that we continue to come up with innovation and better product that could be a rural like Zhuan Zhuan, like Anjuke, but I think there's still a lot of opportunity for us to be more self-served, when it comes to merchant interaction and customer service. And therefore, we take more headcount out of the existing fairly -- still fairly a sizable sales and marketing teams, and therefore, improving the margins, overall margins.

So, that's currently our plan, and we'll continue to work. It's not going to happen in one or two quarters, we will get continuous process in the next two to three years. So, we feel pretty confident.

Michael Yao -- Chairman and Chief Executive Officer

(Foreign Language)

Hao Zhou -- Chief Financial Officer

Yeah, just one more thing, I think we also look at some data of -- which is third-party's, right, in terms of time spent on BECKER versus Anjuke, for instance, or retention ratios. I think we're doing better. We are significantly better than their numbers. There are some of the metrics, BECKER is only half of Anjuke's numbers. So I think that doesn't surprise us, because we have been doing a lot of things on the housing platforms, particularly Anjuke, improving the content, improving the communication channels, having more video-based property listings and even live streaming, increasing in more web 3D, virtue, real estate information, of data, as well we're improving -- while improving data quality as well. And so I think it's very happy to see that some of the work is paying off, yes, in terms of user engagement and increasing metrics.

We are also improving the quality. We have the so-called (inaudible). By working with the agencies, for instance, to provide the property that are available online, so people see these properties, and they go off, they will be able to view the exact properties. So we also made investments in 5I5J, right, as many of you have seen. It was also along the same line that in terms of building a better relationship and trust level with the agency customers, allow us to better collaborate, to allow both of us to better collaborate together on some of the user experience projects, in terms of housing listing, quality improvements, in terms of joint database developments, et cetera. And so, including SaaS opportunities for real estate agents and agency companies.

So, as Michael said in his prepared remarks, and there's a lot we still can do, and we have been -- we have done also on the housing platform side. I think, a lot of these things are paying off in terms of continuous growing -- traffic growth. Our traffic growth definitely is faster in housing than revenue growth. That I can tell you. So -- but we will continue to do that. Over the long run, we will recoup that value, and it's very difficult for competitors to keep up.

Hillman Chan -- Citi -- Analyst

Thank you very much, Michael and Hao for the helpful comment. Thank you.

Michael Yao -- Chairman and Chief Executive Officer

Thanks, Hillman.

Operator

(Operator Instructions) Our next question comes from Natalie Wu of CICC. Please go ahead.

Natalie Wu -- CICC -- Analyst

Hi. Good evening, management. Thank you for taking my question. I have two questions here. The first question is regarding our real estate business. Actually we see relatively weak overall housing transaction volume recently, especially in Tier 1 and Tier 2 cities. Therefore WUBA has been keeping a very resilient real estate revenue growth in the past few quarters. So could management share some thoughts on why this gap or divergence could exist and how long should we expect this divergence could last going forward? That's my first question.

My second question is about our recent deal for acquiring some stake in 5I5J. So could management share some thoughts on why we make this investment in 5I5J, and if WUBA has any plan going forward to invest in other real estate agent companies? Thank you.

Hao Zhou -- Chief Financial Officer

Yeah, I would take the revenue question, Natalie. Yes, it is true. As I said also in my own remarks, the transaction volume in especially Tier 1, Tier 2 cities have been stable. It was less than 2016, for instance, when the market was very hard. So it was already down a bit and in some cities they were just down quite a lot. And your question is why we can continue our revenue? You know, I think, first of all, we continue to provide better services to our agency customers.

As we have said, there's lot of feature-based improvements, we grant more tools to them, we actually happen to save time. And also we are able to grow our traffic quite nicely, even in a difficult environment. This is kind of remarkable because overall transactions are fewer now, but consumers are still considering. So they are still doing their homework online, and as we improve our user experience, we are seeing that they're spending more time, energy, and more users looking at it. And as a result, the ROI of the marketing investment from the agency customers are getting better.

So, overall , the market is not getting bigger, as we speak, because of the positive transaction ever, but actually the ROI is getting better. So, with that, I think, we defend our price quite well, and we have to continue to grow our market share. You can see actually from other peer housing and Internet companies' earning release that actually we are able to grow our revenue, but whereas our peers are declining in their revenue. I think that -- likely their traffic or their user engagement or user experience work cannot just keep up with what we've been doing. So, I think this is great.

How long it can sustain? I think, at least it seems like it's stabilizing now, unlike in 2017 that volumes dropped quite a lot from the high point of symbol [ph]. At least in 2018 it seems like it's stabilizing now. I think as long as it's stable, I think we'll continue to sort of defend our revenue quite well.

And as I said in the previous answers to previous questions, overall, the secondary market is not that place to be, because there will be more secondary home inventory and transaction and commissions over the long term, right. So the new homes built today will become second home inventories in transactions in the years to come. So, I think, we just continue to improve our product, and I think the volume will eventually come back, and the commission increase will eventually come back, and our revenue will eventually reaccelerate. And lower tier cities are doing quite well as well. So, I think, we feel pretty good about our housing franchise today.

Mike will probably comment on 5I5J.

Michael Yao -- Chairman and Chief Executive Officer

(Foreign Language)

Hao Zhou -- Chief Financial Officer

Yes, three points on 5I5J investment. First of all, it is a publicly listed company in Asia. So -- and so I think the quality overall is pretty good, at least better than private company, and more exposure and more and more disclosure, and more sort of management -- better management. And -- but obviously, we don't -- we didn't invest to control the company. I mean, it's about 8%. It's very -- it's a minor percent, and 5I5J will continue to operate independently.

Their business is primarily offline brokerage business, which they apparently are doing it better than us. We are not an expert in offline as well, we're online experts. Just that they are very complementary to us. We're mutually complementary and we want to collaborate. So, we have -- so we don't want to interfere what they are best at and they obviously don't want to interfere with what we're doing, but we want each other to help us -- help each other better. So that was the rationale. It clearly doesn't mean that 58 is going into offline brokerage industry, like some of the misconception was after we announced ours, some of the other Internet companies did before in the housing space. But clearly, it's a different thing.

We also invested to really increase the trust levels and -- between the brokerage companies and us, because in China it's a pretty tricky relationship between the offline brokerage companies and Internet companies, right, because I don't want to name names, but there used to be some previous Internet companies in housing that does change their models quite drastically, and going to offline brokerage companies. So -- but people have that memory. So it is a complex relationship, even though they are our customers, and we have said that we don't want to go into offline, but again there's still -- it's too pretty complex relationship. The trust level is not as high as what we want it to be. So that's why with our investments, hopefully, with 5I5J, we are actually already doing some of the joint projects, interfacing the systems, linking the systems on the two companies together, synchronizing the real estate property listings, so that we have more high quality and genuine housing information.

There are some imperfections about our housing listing quality as well, but I think with these kind of collaboration, we can improve that. And they are very big. They are the second biggest in China. So we all of a sudden have a lot of very high quality housing listings, and then we're trying to -- we're working to interface them online, so that the users benefit from that as well.

And along with some other projects, for instance, they have a huge short -- long-term or -- rental apartment leasing platform. Okay. So they are kind of doing this on their own. They have about 400,000 or so homes that they're managing on a rental basis. And obviously they can benefit from us in terms of Internet helping them to find potential users, and these are -- so it's a huge value as well. And that business alone, I think in private market probably is worth several billion dollars, and it's 100% within the listed company today.

So, the third point is, we believe that it has good value. After invested, the stock price is still above our investment price. So, even from a financial investment point of view, we believe it's a good deal. Be aware that they have about -- they have made a 30% stock dividend in end of June. So you need to do the conversion of the stock price, but on a converted basis, the current share price is still better than our investment price. So, we're above the water. We're not losing -- we're not making losses on that investment just from a financial point of view. So, altogether, I think that's to build better relationship and to improve our user experience on the housing platform. It doesn't mean that we are going to the offline brokerage business at all. Thanks for the question.

Operator

This concludes our question-and-answer session. I would like to turn the conference back over to Rene Vanguestaine for any closing remarks.

Rene Vanguestaine -- Investor Relations

Thank you, Andrea. Thank you all for your interest in 58.com, and joining us on the call tonight. Good day, or good night.

Operator

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Duration: 54 minutes

Call participants:

Rene Vanguestaine -- Investor Relations

Michael Yao -- Chairman and Chief Executive Officer

Hao Zhou -- Chief Financial Officer

Frank Chen -- Macquarie -- Analyst

Thomas Chong -- Credit Suisse -- Analyst

Hillman Chan -- Citi -- Analyst

Natalie Wu -- CICC -- Analyst

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