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Leju Holdings Ltd (NYSE:LEJU)
Q2 2020 Earnings Call
Aug 20, 2020, 7:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Hello and thank you for standing by for Leju's First Half 2020 Earnings Conference Call. [Operator Instructions]

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 first half 2020 earnings conference call. Today, we will update you regarding our financial results for the first half year ended June 30, 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 the first half of 2020. Mr. Li-Lan Cheng, our acting CFO, will then discuss the financial results in more detail. We will then now 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 US dollars.

I will now turn the call over to Leju's CEO, Geoffrey He. He-zong [Phonetic], Please go ahead.

Yinyu He -- Chief Executive Officer

Thanks to everyone joining us on today's call. Against the background of the COVID-19 pandemic, we delivered solid results for the first half of 2020 with steady revenue and increased profit. GTV from our services reached RMB181.5 billion in the first half of 2020. Due to the impact of the pandemic, we have seen strong interest in our innovative offerings, as real estate developers increasing value and utilized online marketing services admidst the challenging market environment. This Chinese New Year, we have accelerated digitalization of our e-commerce business with the launch of five highly effective online marketing campaigns, including online apartment sales, live broadcasting and the VR house tour, online property sales platform, spring online real estate transaction fair and the Suning to June 18 online promotion, leveraging our online property sales platform, which provides a comprehensive online property transaction ecosystem including property subscription, sales launch and electronic signings.

In addition, we recently announced an exclusive strategic cooperation with Suning, which will further strengthen the development of an online closed-loop transaction model through the combination of vertical platforms and professional e-commerce platforms. We also recently announced a strategic cooperation between E-House, Alibaba and Leju to build an online real estate marketing and transactional platform with the goal of enhancing the digital and the intellectual capabilities of the real estate service industry. Leju will become the service provider for digital marketing and operation on the platform, which will greatly enhance our core value and expand our business scale in the future.

Looking forward to the second half of this year, through our in-depth cooperation with Alibaba and Suning, we will further improve our platform, continuously expand our market reach and product innovation, and provide leading online integrated marketing solutions for the property industry. We will also further optimize our operations and management and improve our operational efficiency to ensure the healthy and sustainability development of the Company.

Now I will turn the call over to our acting CFO, Mr. Li-Lan Cheng, who will review our financial highlights for the first half of this year.

Li-Lan Cheng -- Acting Chief Financial Officer

Thank you, Geoffrey. Good morning and good evening, everyone. For the first half of 2020, we recorded total revenue of $279.7 million, relatively flat compared to the same period last year. Total revenues denominated in RMB were RMB1.973 billion, an increase of 4% from the same period last year. With business activities largely back to normal following the pandemic, our total revenues recovered quickly in the second quarter.

Our e-commerce revenue slightly decreased by 2% to $205.4 million for the first half of 2020, as a result of devaluation of RMB relative to US dollars. E-commerce revenues denominated in RMB were RMB1.449 billion or roughly RMB1.45 billion, an increase of 2% from the same period last year, primarily due to an increase in the number of discount coupons redeemed, partially offset by a decrease in the average price per discount coupon redeemed. E-commerce service revenue contributed 73.4% of our total revenues for the first half of this year. Our online advertising revenues contributed 26.4% of our total revenues and it increased by 5% to $73.9 million for the first half of 2020, due to an increase in property developers' demand for online advertising, while our listing revenues decreased by 60% to $0.3 million as a result of a decrease in demand for secondary real estate brokers for the first half of 2020.

Income from operations was $1.2 million for the first half of 2020 compared to a loss of operating -- loss from operations of $7.1 million for the same period last year. Net income attributable to Leju's shareholders was $1.5 million for the first half of this year compared to a net loss attributable to Leju's shareholders of $4.1 million for the same period of 2019. Non-GAAP income from operations was $8.3 million for the first half of this year compared to $0.4 million for the same period last year. Non-GAAP net income attributable to Leju's shareholders was $7.2 million for the first half of 2020, an increase of 306% from the same period last year.

As of June 30, 2020, our cash and cash equivalents balance was $258.2 million. Our net cash -- our net cash flows generated from operating activities for the first half of this year was $101.1 million, mainly attributable to non-GAAP net income of $7.6 million, an increase in advance from customers of $70.7 million, an increase in amounts due to related parties of $49.7 million, and a decrease in customer deposits of $31.1 million, partially offset by an increase in accounts receivable and contract assets of $47 million and a decrease in other payables of $23.7 million.

Looking ahead, we estimate that our second half of 2020 total revenues will be approximately between $480 million and $500 million, which represents an increase of approximately 16% to 21% from the same period last year. Please note that this forecast reflects our current and preliminary view, which is subject to change.

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

Questions and Answers:

Operator

Certainly. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] We have our first question from the line of Eric from Blue Lotus. Please go ahead.

Eric Wen -- Blue Lotus -- Analyst

Hello. Thank you. First, congratulations on the good result. I have two questions. First one is can He-zong and Li-Lan, can you elaborate on how you plan to convert Tmalls to see traffic and utilize our new home selling site revenue to convert them into home purchasing traffic? My second question is, I noticed that your advance from customers went up three-folds, while customer deposit actually declined little bit compared to half a year ago. Can you explain what is the linkage between these two accounts? And how do you expect to recognize this advance from customers into revenues in the second half -- in the second half? Thank you.

Yinyu He -- Chief Executive Officer

Okay. I'll ask you first -- answer the first question that because we are still in a very initial stage to cooperate with Alibaba, and we are still evaluating the traffic from Tmall and Toutiao and Alibaba ecosystem. Apparently they have a very big traffic in terms of the e-commerce. However, how many buyers on that platforms are interested in home buyers and also how many users actually can be effectively converted to be our house how purchasers? We are in the stage -- we are in close cooperation with Alibaba colleagues, and it is actually is our goal to effectively utilize their traffic to -- into our online house platform. So it is early to answer your question that how many people will come from their platform. But from our -- from our initial discussion, I think this is quite effective way, because they still have a very strong, strong traffic.

And another advantage is that, they say actually precisely know of the habits of their users. So I think we -- if we combine their technologies and Leju's technologies, we are quite soon to figure out a effective way to utilize the traffic. So that's the first question -- answer.

Li-Lan Cheng -- Acting Chief Financial Officer

Yeah, I'll answer the second question. The -- advance from customers and customer deposits are actually two very different things. Maybe the labeling, it's not ideal, so it causes the confusion here. Advance from customers, here the customer are the individual home buyers. And advance from customers is the money we -- we receive when we sell the coupons, but before we recognize our revenue. So, it's kind of a deferred revenue in nature. Customer deposits, here, the customer, the word customer means, developers. So it's a -- two totally different things, customer deposit is the amount of money, the money we pay to developers to secure certain e-commerce products and it's refundable, usually refunded within a couple of months. So it's just the coincidence that we use the word customer in both places. So that may be what's causing the confusion. And these two -- the movements of these two items are completely unrelated. So it's just a coincidence here.

Eric Wen -- Blue Lotus -- Analyst

Okay. [Foreign Speech] Okay.

Operator

Thank you. We have our next question from the line of Marco Rodriguez from Stonegate Capital Markets. Please go ahead.

Marco Rodriguez -- Stonegate Capital Markets -- Analyst

Good morning. Thank you for taking my questions. I was wondering if you could talk a little bit more about the strategic cooperation with Suning? What are the possible kind of revenue impact, if you can help frame that?

Li-Lan Cheng -- Acting Chief Financial Officer

Okay. I think our cooperation with Suning is the first step that Leju cooperate with an expertise e-commerce platform. As you know, Suning is an e-commerce platform for home appliances and the platform, because we are winning based on stores. And the -- Leju's platform actually is based on information platform, and then we --plus the trading tours on that. So it is -- it is now our first to cooperate with an expertise, the e-commerce platform. The first step that, as you see that, we exclusively run real estate channel on the Suning platform. On the other hand, we also opened a flagship store on the Suning platform. This enable with us to, to do the transactions on the e-commerce platform through promotions like our June 18 activities, we accumulated a lot of expertise to how to -- how to provide marketing services to our developers.

So it is, so far I think, because we -- we just finished our second promotion with Suning, and we talk about that August 18 activities. And actually, the results are quite good. So we are trying different methods to utilize the Suning platform to enrich our varieties on services to our developers. Just, that's the first one. On the marketing side, so we have a lot of -- we have more choices, options of activities, marketing activities to the developers. The second is that, we are actually combining our users to their users. This is kind of value-added chain, because on the Leju's platform, we have very precise users, our home buyers which actually are very active, precise buyers or potential buyers of their home appliances. So we are trying to put our value-added together to enrich the -- enrich the experience of lot of our users. That's on the second -- second part.

The third part is that, we are also talking about more options to provide value-added services to the users, including financial services which Suning finance will provide. So, this will also provide us another way to enrich our capabilities to serve the developers and the users.

Marco Rodriguez -- Stonegate Capital Markets -- Analyst

Got it. Understand that. Then switching gears, if you could just talk a little bit more in regard to the Alibaba transaction that you guys just recently announced? If maybe you can talk a little bit about how the transaction came about? And if you can maybe talk about the timing of the transaction? Just kind of wondering why it happened now versus maybe in the past, given the fact that you guys all know each other.

Yinyu He -- Chief Executive Officer

Okay. The deal actually is not -- it's a part of the deal, but actually, since the main deal is between the E-House and Alibaba, I think, why it happened, because of -- may be part of, because of the pandemic, most developers actually begin to value the online -- online marketing and the sales capabilities. And it is quite a good point that online platforms, they shifted their attention to such a big market, which is worth RMB100 billion or more. So that's, I think, the time point is that Alibaba is very interesting. And actually E House and plus Leju, we actually are very strong. Actually we have a quite strong presence on the market and that's, as we think why the deal happened today.

On the other -- on the second half, is that, we actually, since also opened that door for Leju, we -- when you see our cooperation with Suning is our first step. It's our first step, we are cooperating with e-commerce platform and we accumulated experience. And so this will also help us in our further cooperation with Alibaba, because they are also Alibaba -- the e-commerce platforms. So this is quite helpful for us. And this also opened window to attract e-commerce users or the traffic. We -- before, we actually, our users are mainly attracted from the information based users, potential buyers and the source of e-commerce platforms, actually the another important potential buyers for us, so that's the second one.

Li-Lan Cheng -- Acting Chief Financial Officer

If I may just add a little bit to what Geoffrey just said, in fact in our -- E-House Chairman, Mr. Zhou Xin and the senior management, we've known Alibaba people for a long time, and there has been -- that there had been on and off discussions about Alibaba's intention, their thoughts about whether, and where and how to get into the real estate industry, how to bring that on to the Ali platform and how we could work together. So I think, it is -- this dialogue has been happening for a while. and I think, Ali's mind, the E-House and Leju plus, we would always be their preferred partner.

I think sort of to echo what Geoffrey said, I think the fact that happen now, behind this is, I think Alibaba finally, one, made up its mind that they wanted to -- had to get into real estate to cover to make the overall ecosystem complete. And the COVID-19 pandemic may actually be one of the factor, because when all the offline showrooms were shut down, Leju was probably the only player, our marketing player still operating, that maybe one thing, the other we -- although we didn't explicitly discussed this, but I think the success of vehicle and its IPO may have given another impetus. Just so Ali, people could see how big that this platform could be when you combine online and offline platforms to facilitate on real estate transaction. So I think the -- the dialog lasted quite long, but is, when it start to speed up, and the profit was actually quick.

Marco Rodriguez -- Stonegate Capital Markets -- Analyst

Understood, very helpful. And last quick question from me. In your prepared remarks, you talked about optimizing operations and improving operational efficiency. Are these any sort of cost cutting moves that you're making, if you can just kind of expand on that and maybe quantify if you can what that means?

Yinyu He -- Chief Executive Officer

I think I don't actually improve the efficiency of our operation. It doesn't mean that we cut hands [Phonetic] because our e-commerce platforms includes online, both online services and the offline service. Previously actually when developers, they show little interest on the online services. So they say yes, they ask more often services from us, which means cost -- more cost to us. And from this year, because we already showed efficiency of the online services, this will help us actually improve our cost structure. That's why I say, we will try to increase, further increase our operational efficiency, mainly because we still think there is a big part of -- quite big room. First is educate the market, that way you use the online services, you can be more strategic, efficient, when you're choosing the offline services. That's first one. The second one is that, from our platform structure, we will actually invest more resources to the online services rather than and put other offline services, which will also help us to improve the cost structure. So that's what I mean in the prepared remarks.

Marco Rodriguez -- Stonegate Capital Markets -- Analyst

Got it. Very helpful. Thank you very much for your time. I appreciate it.

Yinyu He -- Chief Executive Officer

Thank you.

Operator

Thank you. We have our next question from the line of Miranda Zhuang from Bank of America. Please go ahead.

Miranda Zhuang -- Bank of America -- Analyst

Thank you, operator. Good evening, management. Thanks for taking my question. I have a couple of questions. First of all, I want to ask question to follow up on the cooperation with Alibaba which includes several, I know, small questions, first of all is, management just highlighted a few areas that you are cooperating with Suning. I'm wondering, is that kind of cooperation that you mention as more value-added services in running the housing channels and that -- those kind of the cooperation, that will be also, be implemented in our cooperation with Alibaba. And what else, what kind of cooperation areas that you think might be interesting for your cooperation with Alibaba?

And then my small question, second question is on, I think you mentioned a very good point about converting the traffic from Alibaba which is a general e-commerce platform to exactly -- to select the -- those users that are interesting in housing transactions and that will be an area that you need to work on. So I'm wondering that what's -- what can -- what's the depth of the cooperation that you're working with Alibaba? Is it going to like cooperation in more in-depth level, for example, the sharing of the user data, integration of the user data, so that you can better use data mining to find all those users that are interested in your platform and also that are available in Alibaba? And then I will ask a question later. Thank you. Another question later. Thank you.

Yinyu He -- Chief Executive Officer

Thank you for your questions. For the first question, actually, we announced that we will cooperate with Alibaba to building two platforms. One is strategic marketing platforms, and the second one is the online transaction platforms. So that's the two platforms. One is the marketing platform, which actually now we are cooperating with Suning is mainly on the marketing side. So we actually, you can see, we sell a little a very small amount coupons on that to attract the potential buyers. And also we compensate some money in cash, in Suning cost, so that when they the finish the purchase. So it's -- on the marketing side, we will continue actually or either extend the scope of cooperation with Suning and we also will copy this models to the Alibaba.

And as Alibaba has ecosystem is stronger than the Suning, so this will enable us to play more marketing activities on the Alibaba side. And the one thing is, for sure is that, we are going to join through the November 11 activities, marketing activities together. That's the first one. For the second one is that, we are going to -- to the online transaction platforms, which relies on the payment solutions and even the financial services. So this capability of Alibaba -- and I think, we have the strong capabilities of we know when the developers, how to sell that. How to -- and Alibaba has the capabilities to find out financial solutions, payment solutions for them. So we are going to the second platform is that, online transaction platform.

And the third one is that, when we are building up the marketing platforms and the transaction platforms, we will also pay some attention to the post home purchase market, which means when the people buy the houses on the online and how many value-added services, even value-added e-commerce services we can provide to those users. So three parts that we are considering now with Alibaba, currently we are in very close discussion with them to realize these functions and we are trying to building up -- building out comparatively a mature platforms in one or two years.

And as to the other one is that, one advantage for Alibaba is that, he actually owns 8 -- so 800 million, 800 million consumers on that platforms. So data mining is for sure, is that abilities. However, we know, the characteristics of the potential buyers. So we need to combine their traffic with our capabilities to find out how many people in the coming six months or three months they have the intention to buy houses, and we can do effective marketing services to them and then convert them into the trading stage. So that's the important topic between our two companies now. I think this is also a very effective way. This help us -- help Leju to improve our capabilities to reach our bigger audience. And for Alibaba, we have a new way to realize the value of their current users to provide more added services.

Miranda Zhuang -- Bank of America -- Analyst

Thank you. And so I want to ask my second question. We also noticed that now you're have been consolidated by Leju Group, because increase the holding company. So I'm wondering that, what kind of initiatives or cooperations they will, you will work with Leju, since now you're a consolidated entity, especially, because Leju's, sorry, Leju's strength is in the offline activities that they have offline sales teams, why your strength in the online market. So can you elaborate more on the potential there?

Yinyu He -- Chief Executive Officer

Okay. During the discussion, on the deal discussion with Alibaba, actually shout-out to their Chairman asks questions. The real estate actually is an online plus offline circle, only online or only offline currently is -- currently not ideal model. So he asked the questions why E-House and Leju can't cooperate first, because Leju is online and E-House is offline. So I think this is also a good question for us. In the past 10 years actually, we have some small cooperations, but not big on scale, on the corporate level, we are not doing some close cooperation. So I think this is a good start for us to think about our model, both combining both online and offline services. So that's the initiative that E-House become the controlling shareholder of Leju, this also enables us to think about that.

Previously, actually we are two independent companies. So a lot of -- a lot of services are providing to developers separately and our financial controllers also ask us not to, we have to say is that, it's kind of the internal trading right, but now become -- now it has become our controlling holders. I think this problem is solved. So this also accelerate our solutions. We can provide both online and offline combined solution developers. I think it's good for us.

Miranda Zhuang -- Bank of America -- Analyst

Thank you. So my last question is about our guidance. So, we mentioned that we expect 16% to 21% growth in the second half of this year. I'm wondering which is improved meaningfully from the first half level. So I'm wondering that in your business outlook, how much of that is contributed by recovery of the housing market, overall market and then how much of that will be contributed by potential contribution following the cooperation with Suning and Alibaba? And then also how much of that will be contributed by your improvement of your own traffic, conversion rate, meaning that your, after you're implementing the VR and online e-commerce tours that can help to improve your traffic to coupon or to transaction conversion rate. I'm just wondering how much of that is improved? Thank you.

Yinyu He -- Chief Executive Officer

Okay. First, our forecast, the current forecast is based on our current situation. And we put very little -- little percentage to added to the forecast from the cooperation with Alibaba, because now we are still in initial discussions. So we -- we can't -- don't have very exact forecast how many, how many value added will come from the cooperation, from the cautious level, we cannot put them into the forecast. And as you see that, because all the -- our first half, you can see even the, our e-commerce side, e-commerce side revenue is flat, but when you break into two quarters you can see, the first quarter, actually we -- the e-commerce revenue is down, because of pandemic. And we also we actually recorded a quite high growth in the second quarter.

So we just think that the third quarter and fourth quarter, the market, first, the market will keep stable. And from our previous experience, so that the second half is also almost two times, twice about the first half. So it's our forecast based on these previous experience and the current market situation, and our forecast about the market movement. That's -- that we think that we, our forecast of between the 16% to 21% growth in the second half. We count a little now to the forecast of -- to about the cooperation with Alibaba only. But optimizely, we think, if we -- we can generate the results quickly from the cooperation. I think we, we are going to report a higher growth from that.

Miranda Zhuang -- Bank of America -- Analyst

Thank you. And how that, like the other part of question, like any quantitative color on how much of your conversion rates are improved due to the use of the VR showrooms or online showrooms.

Yinyu He -- Chief Executive Officer

Because, our e-commerce current conversion rate is about 80% -- that, if I remember not wrong. And because our sales, sales of the coupons is online. But I think nobody will buy the coupons online and don't go to the showrooms. So it's a combined the closer loop of the sales process. So the conversion rate is, I think when the -- keep stable around the 88% like that.

Miranda Zhuang -- Bank of America -- Analyst

Okay, thank you.

Operator

Thank you. We have our next question from the line of Eric Wen from Blue Lotus. Please go ahead.

Eric Wen -- Blue Lotus -- Analyst

Okay, thanks. Thanks, management for taking my follow-up question. I have two follow-up questions. First is housekeeping one. Can you give a breakdown or at least some, describe the trend of coupons purchased and redeemed in the first quarter and second quarter and what's the volume we're going to spread in the third quarter and the fourth quarter? And I have follow-up question.

Li-Lan Cheng -- Acting Chief Financial Officer

Slow down well, since we are doing only the -- we're doing only first half financial results, where we're not going to release our quarterly numbers. If we released one set of numbers we making would be obligated to disclose all others. But in general, like Geoffrey said earlier and answered an earlier first quarter was relatively --- was the operations was poor because of the pandemic and of a lot of the recovery and rebound happened in the second quarter.

Eric Wen -- Blue Lotus -- Analyst

Okay.

Yinyu He -- Chief Executive Officer

Yeah. I can add something, is that. Yeah, I can add something that our second quarter is quite strong. The growth.

Eric Wen -- Blue Lotus -- Analyst

Okay, thanks. My second question is a general question, is that your competitor has published opinion, saying that the circulation rate of China's residential real estate is about 2, the number of houses changing hence compared to the -- the overall house available in China. The developed countries about four to six. What is our view regarding this circulation ratio and what do you think the potential for housing transaction will be in China in the foreseeable future. Thanks.

Yinyu He -- Chief Executive Officer

Sorry, I didn't get your question, about the circulation rate off of houses.

Eric Wen -- Blue Lotus -- Analyst

Houses. Yeah, it's basically is the number of total houses in China at the denominator and the number of second-hand house transactions in the numerator. So, it's about 2%. Sorry, but it's not 2%. And the developed countries about 4% to 6%. So there is about a double the size potential.

Yinyu He -- Chief Executive Officer

You mean the commercial -- commission rate, is right? But this is [Indecipherable].

Eric Wen -- Blue Lotus -- Analyst

No it's a circulation rate. [Foreign Speech]

Yinyu He -- Chief Executive Officer

Okay. I can add a market trend is that currently China's market is still the primary sector dominated market. And when people buy the houses, the first choice is the primary market, primarily new house rather than the second-handed house. That's the first one. The second one is that the conversion rate of the second-hand house is subject to the transaction price of the new house, which is controlled actually by the regulatory government. It's -- you cannot use the figures of the developed countries to combine -- to compare with our China's market. So it's very different markets. You know what I mean.

Eric Wen -- Blue Lotus -- Analyst

Okay. Yes, yes, that's right. Okay. It's OK. Thank you.

Operator

Thank you. [Operator Instructions] We do not have any questions at the moment. I would like to hand the conference back to your presenters today. 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 the numbers or emails provided on our earnings release and on our website. Thank you.

Operator

[Operator Closing Remarks]

Duration: 42 minutes

Call participants:

Michelle Yuan -- Deputy Chief Financial Officer

Yinyu He -- Chief Executive Officer

Li-Lan Cheng -- Acting Chief Financial Officer

Eric Wen -- Blue Lotus -- Analyst

Marco Rodriguez -- Stonegate Capital Markets -- Analyst

Miranda Zhuang -- Bank of America -- Analyst

All earnings call transcripts

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