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Fang Holdings Limited (SFUN)
Q2 2019 Earnings Call
Aug 30, 2019, 8:00 a.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Ladies and gentlemen, thank you for standing by. And welcome to the Q2 2019 Fang Holdings Limited Earnings Conference Call. My name is Albert and I will be your operator for today. [Operator Instructions] Later, we will conduct a question-and-answer session. [Operator Instructions].
I would now like to turn the call over to Ms. Jessie Yang. Please go ahead.
Jessie Yang -- Director of Investor Relation
Thank you, operator. Hello, everyone, and welcome to Fang Holdings Second Quarter 2019 Earnings Conference Call. Joining us today to discuss Fang's results are our CEO, Mr. Jian Liu; and acting CFO, Mr. Zijin Li. After the prepared remarks, our management will answer your questions.
Before we get started, I would like to remind you that during the course of this conference call, we may make forward-looking statements, statements that are not historical facts, including statements about our beliefs and expectations. Forward-looking statements involve inherent risk and uncertainty. A number of important factors could cause actual results to differ materially from those contained in any forward-looking statements. Fang assumes no obligation to update the forward-looking statements in this conference call and elsewhere. Potential risks and uncertainties include, but are not limited to those outlined in our public filings with the SEC, including our Form 20-F.
Now I would like to walk you through our second quarter 2019 financials, after which Mr. Liu and Mr. Li will answer your questions for the Q&A session.
Fang reported total revenues of $67.6 million in the second quarter of 2019, an increase of 6.8% from $63.3 million in the corresponding period of 2018, mainly due to the increase in revenues from marketing services. Revenue from marketing services was $32.5 million in the second quarter of 2019, an increase of 19.3% from $27.2 million in the corresponding period of 2018, driven by Fang's efforts in customer development.
Revenue from listing services was $19.2 million in the second quarter of 2019, a decrease of 26% from $26 million in the corresponding period of 2018, mainly due to the decrease of paying members in listing services. Revenue from leads generation services was $10.8 million in the second quarter of 2019, an increase of 290.2% from $2.8 million in the corresponding period of 2018, driven by the increased effectiveness of the service and customer development. Revenue from financial services was $2.6 million in the second quarter of 2019, a decrease of 3.2% from $2.7 million in the corresponding period of 2018.
Cost of revenue was $8.3 million in the second quarter of 2019, compared to $8.4 million in the corresponding period of 2018. Operating expenses were $30.3 million in the second quarter of 2019, a decrease of 53% from $64.5 million in the corresponding period of 2018, mainly due to the decrease in bad debt and staff costs.
Selling expenses were $16.1 million in the second quarter of 2019, an increase of 12.5% from $14.3 million in the corresponding period of 2018. G&A expenses were $15.7 million in the second quarter of 2019, a decrease of 69.1% from $50.7 million in the corresponding period of 2018, mainly due to the decrease in bad debt and staff costs.
Operating income from continuing operations was $29 million in the second quarter of 2019, compared to operating loss from continuing operations of $9.6 million in the corresponding period of 2018, mainly due to the decrease in operating expenses.
Change in fair value of securities for the second quarter of 2019 was a loss of $48.5 million, compared to a loss of $82.9 million in the corresponding period of 2018, mainly due to the fluctuation in market price of investments in equity securities.
Income tax benefits were $20.6 million in the second quarter of 2019, a decrease of 27.2% compared to income tax benefits of $28.3 million in the corresponding period of 2018, primarily due to the effect of change in fair value of equity securities and the reversal of previously recorded ASC 740 (FIN 48) income taxes and interest.
Net income was $4.2 million in the second quarter of 2019, compared to net loss of $53.5 million in the corresponding period of 2018. As of June 30, 2019, Fang had cash and cash equivalents, restricted cash, current and non-current and short-term investments of $500.6 million, compared to $439.7 million as of December 31, 2018.
Now I would like to walk you through our first half 2019 results. Fang reported total revenues of $102.6 million in the first half year of 2019, a decrease of 8.7% from $112.3 million in the corresponding period of 2018. Revenue from marketing services was $45.7 million in the first half year of 2019, an increase of 5.3% from $43.4 million in the corresponding period of 2018, driven by Fang's efforts in customer development.
Revenue from listing services was $31.4 million in the first half year of 2019, a decrease of 29.7% from $44.6 million in the corresponding period of 2018, mainly due to the decrease of paying members in listing services.
Revenue from leads generation services was $14.8 million in the second quarter of 2019, an increase of 281.2% from $3.9 million in the corresponding period of 2018, driven by the increased effectiveness of the service and customer development. Revenue from financial services was $6.1 million in the first half year of 2019, a decrease of 21.1% from $7.8 million in the corresponding period of 2018.
Cost of revenue was $16.7 million in the first half year of 2019, a decrease of 34.2% from $25.4 million in the corresponding period of 2018, primarily due to cost savings from optimizing Fang's core business.
Operating expenses were $68.6 million in the first half of 2019, a decrease of 36% from $107.2 million in the corresponding period of 2018, mainly due to the decrease in bad debt and staff costs.
Selling expenses were $32.5 million in the first half year of 2019, an increase of 16.9% from $27.7 million -- $27.8 million in the corresponding period of 2018. G&A expenses were $38.1 million in the first half year of 2019, a decrease of 52.6% from $80.2 million in the corresponding period of 2018, mainly due to the decrease in bad debt and staff costs.
Operating income from continuing operations was $17.2 million in the first half year of 2019, compared to an operating loss from continuing operations of $20.2 million in the corresponding period of 2018, mainly due to the decrease in operating expenses.
Change in fair value of securities for the first half year of 2019 was a loss of $16.5 million, compared to a loss of $125.2 million in the corresponding period of 2018, mainly due to the fluctuation in market price of investments in equity securities.
Income tax benefits were $9.5 million in the first half year of 2019, a decrease of 71.7% from $33.5 million in the corresponding period of 2018, primarily due to the effect of change in fair value of equity securities and the reversal of previously recorded ASC 740 (FIN 48) income taxes and interest.
Net income was $17.6 million in the first half year of 2019, compared to a net loss of $98.4 million in the corresponding period of 2018.
Based on current operations and market conditions, Fang's management remains confident that net income is expected to be positive for the fiscal year ending December 31, 2019. This estimate represents management's current and preliminary view, which is subject to change.
I want to thank everyone for joining our call today. And we're now open for questions. Operator, please go ahead.
Questions and Answers:
Operator
Thank you so much. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] Your first question comes from the line of Miranda Zhuang of Bank of America. Your line is now open.
Miranda Zhuang -- Bank of America Merrill Lynch -- Analyst
Thank you very much for taking the questions. And congratulations on the results. We noticed that the marketing service revenue grew -- turned to a positive strong growth this quarter. So can management share with us, like, what's the reason behind this? And then how should we think about the -- this revenue line in the second half of this year?
And then my second question is about the overall industry dynamics. So can management share with us the -- your outlook for the property advertising budgets overall for the industry? How is it trending? Do we see any, like, dilution from the -- for example, competition of the property developers sales channel fees toward the online advertising? The reason is, because we have seen that many, like, listing platforms like [Indecipherable] they are working with primary home agents to work on those new home, perhaps past secondary home connected sales to get more budget in sales channel fees. So do we see any impact to that -- to the online marketing budgets from that?
And then my third question is, we have seen the leads generation service growing very strongly this quarter. So can management share with us any, like, underlying matrix for this business. For example, like the number of paying agents or paying developers and then the ARPU? And then, how should we think about the businesses to trend in second half of this year? Sorry for many questions. My last question is, does management have any update on the potential spin-off of the advertising and listing business this year? Thank you.
Jessie Yang -- Director of Investor Relation
Okay. Miranda, just let me translate for a second and then our CEO will answer your questions.
Jian Liu -- Chief Executive Officer
[Foreign Speech]
Jessie Yang -- Director of Investor Relation
Hi. One second, and I'll translate shortly. So Miranda's question had four parts. The first part was about marketing. And for marketing in the second quarter, we grew 19%. And this is because we increase in terms of management and operations to the new home business within Fang Holdings. Marketing -- in the marketing business industry, Fang is still the first choice for many developers in terms of being a platform. And it's clear that there are very few competitors in this field that can do what we do. And we have the advantage of being straight -- a straight vertical and this is one of the drivers for our growth. And another driver is our innovation and -- such as, new services like online live videos, those also contribute to the growth of the marketing line of business.
The second question was about leads generation. Now, this is the first time we separated leads generation from marketing and this is because the revenues have reached a certain scale. It's very important in terms of direction for us, both for operations and strategy. And this is one of our main focus going forward. And we have seen the effects of leads generation business in terms of connecting users and our clients. We have an initiative called K-Plus [Phonetic] and what it is? It's through online telephones, instant messages, targeted data to produce leads for our clients. And what it is? It guides quickly our clients to the potential users and users with demand for buying homes. And the revenues and the numbers are showing its effectiveness that we have achieved. And we have also gained very good recognition in the market for this service. So in terms of strategy, execution and operations, this is one of the main focuses of Fang going forward.
The third question was about the budget of developers. Specifically, we see a lot of agents, for example, linking primary and secondary home sales. The developers are closely related to the real estate market. And for example, they adopt, we see them adopting primary and secondary home sales agents and selling together. And the developers want to use multiple channels, they want to use these specific channels, the primary plus secondary, but they also want to control these channels, because they're very costly. So they do want to use different channels for sales and our advertising platform is one of these channels that they need. As well as our leads generation services.
So our lead generation services is not only limited to developers, but it is also open to real estate agents. So in terms of primary and secondary homes, both developers and agents can use the leads generation service. So as long as market participants have the need for finding clients demand for purchasing homes. This is a very good service and platform going forward.
And the last question was an update on the spin-off of the marketing and listing service. There is no change since our last update and we expect to complete the spin-off at the end of the year. And going through the spin-off is also part of the reason that you see growth for our second quarter, because it makes us realize what are core business is and where our strengths are. Thanks.
Operator
[Operator Instructions] Your next question comes from the line of Matt Reynolds from Duncan Family [Phonetic]. Your line is now open.
Matt Reynolds -- Duncan Family -- Analyst
Hi, good morning. Thank you. But my questions have already been asked and answered. But congratulations on a great quarter. Thank you.
Jessie Yang -- Director of Investor Relation
Thank you.
Operator
[Operator Instructions] Your next question comes from the line of Kevin Yu from Banque Finance [Phonetic]. Your line is now open.
Jessie Yang -- Director of Investor Relation
Hi. You can ask your question. Okay. Operator, maybe we can go to the next question.
Operator
All right. Thank you. The next question comes from the line of Shan Lee [Phonetic], a Private Investor. Your line is now open.
Shan Lee -- Private Investor -- Analyst
Okay. My question is from your earlier response [Indecipherable] successful efforts in customer management, could you talk more about this? And what's your plan for the rest of the year? Thank you.
Jessie Yang -- Director of Investor Relation
Okay. Thank you for your question. [Technical Issues] translate for a second.
Jian Liu -- Chief Executive Officer
[Foreign Speech]
Jessie Yang -- Director of Investor Relation
Okay. So just to translate. The growth that we see in terms of new customer development, as well as plans for the rest of the year, that was the question. In terms leads generation, it's very well received by the market in general and whether it's by real estate developers or real estate agents. In the past, we were more facing institutions or companies, but now we have also opened the platform to individual agents as well. So we expect this to increase our client base significantly and we're confident that we will increase the number of paying clients in the future.
Jian Liu -- Chief Executive Officer
[Foreign Speech]
Jessie Yang -- Director of Investor Relation
So additionally, in terms of our strategies for covering the cities in China, the third and fourth cities presents a lot of space for growth for us. And these are new channels that we have made preparations for already and we plan to develop them in terms of our number of paying customers. Thank you.
Operator
[Operator Instructions] Your next question comes from the line of Kevin Yu from Banque Finance. Your line is now open.
Kevin Yu -- Banque Finance -- Analyst
[Foreign Speech]
Jian Liu -- Chief Executive Officer
[Foreign Speech]
Jessie Yang -- Director of Investor Relation
So to translate, the question was about turning to profitability in today's -- in the second quarter earnings. The reasons behind this, as well as management's views for the rest of the year. And the reason for the growth from a revenue perspective was from marketing -- the growth in marketing and leads generation services, and as well as our internal management. We have improved in terms of accounts, receivables and bad debt. And for next year or the remainder of this year, what we're focused on mainly is, how to increase the effectiveness of our services? How to present accurate leads to our clients? How to bring the more users from third and fourth tier cities? And as well as cooperating with other large real estate agencies on our real estate listings platform? Thank you.
Kevin Yu -- Banque Finance -- Analyst
[Foreign Speech]
Jian Liu -- Chief Executive Officer
[Foreign Speech]
Operator
[Operator Instructions] There are no further questions at this time. I'm going to hand the call over back to Ms. Jessie Yang.
Jessie Yang -- Director of Investor Relation
Thank you, operator. I want to thank everyone again for joining our call today. And we look forward to speaking with you soon for our third quarter 2019 earnings call. Thank you very much.
Operator
[Operator Closing Remarks]
Duration: 37 minutes
Call participants:
Jessie Yang -- Director of Investor Relation
Jian Liu -- Chief Executive Officer
Miranda Zhuang -- Bank of America Merrill Lynch -- Analyst
Matt Reynolds -- Duncan Family -- Analyst
Shan Lee -- Private Investor -- Analyst
Kevin Yu -- Banque Finance -- Analyst
