Fangdd Community Group Ltd. (DUO) This fall 2020 Earnings Name Transcript

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Fangdd Community Group Ltd. (NASDAQ:DUO)
This fall 2020 Earnings Name
Mar 26, 2021, 8:00 a.m. ET

Contents:

  • Ready Remarks
  • Questions and Solutions
  • Name Members

Ready Remarks:

Operator

Girls and gents, thanks for standing by, and welcome to Fangdd Community Group Restricted fourth-quarter and full-year 2020 earnings convention name. [Operator instructions] Please word that this occasion is being recorded. I might now like at hand the convention over to your speaker host immediately, Mr. Warren Wen, monetary controller of the corporate.

Please go forward, Warren.

Warren WenMonetary Controller

Thanks, operator, and hi there, everybody, and thanks all for becoming a member of us on immediately’s name. The corporate has introduced its fourth-quarter and full-year 2020 outcomes immediately and earnings launch is now obtainable on the corporate’s IR web site. In the present day, you’ll hear from our co-CEO, Mr. Zeng Xi, who will begin the decision with a evaluate of our progress, the present trade dynamics, and particulars of our growth methods in 2020.

Afterwards, our CFO, Mr. Pan Jiaorong, will go over with our financials earlier than we open up the decision for questions. Our administration crew will ship their remarks in Chinese language and I’ll present English translations. Earlier than we proceed, I wish to refer you to our secure harbor assertion in our earnings press launch which applies to this name as we will probably be making forward-looking statements.

Please additionally word that we’ll talk about non-GAAP measures immediately that are extra completely defined and reconciled to essentially the most comparable measures reported beneath the widely accepted accounting ideas in our earnings launch and our filings with the SEC. And with that, I’ll now flip the decision over to our co-CEO, Mr. Zeng Xi. Please go forward, sir.

Zeng XiCo-Chief Government Officer

[Foreign language]

Warren WenMonetary Controller

Good day, everybody, and welcome to our fourth-quarter 2020 earnings name and Mr. Zeng wish to begin off the decision with a evaluate of the actual property market in 2020. Throughout 2020, actual property builders began to undertake digital advertising and marketing of their operations. Nonetheless, builders confronted growing value stress as they rely extra on the gross sales channel to attain the next turnover price whereas gross sales channel commissions continued to extend quickly.

The COVID-19 pandemic in 2020 additionally additional accelerated the digitalization of varied industries as extra customers moved on-line usually, the reliance on on-line gross sales channels from homebuyers have resulted within the fast growth of digital actual property transaction providers. Nonetheless, as the actual property trade strikes to concentrate on decreasing stock and the federal government’s implementation of sequence of initiatives in 2020, such because the property worth caps and the three crimson strains coverage, builders have confronted further stress on their revenue margins. Consequently, decreasing prices and bettering turnover effectivity have grow to be core points for builders. Based mostly on the information from our Actual Property Digital Analysis Institute, the fee price for peculiar residential property gross sales exceeded 3% in 2020.

In accordance with a report from CSC Monetary, the typical fee price for the resale property has remained beneath 2% for the previous two years. Consequently, we imagine that the growing development in fee price for brand spanking new building property is neither long-term nor sustainable. Builders are at all times situated on the first ring of the worth chain for the actual property agent service sector and the adoption of digital advertising and marketing options could reshape the position that platform performs as their gross sales channels going ahead. Now we have additionally noticed a sequence of structural adjustments in the actual property agent service sector.

The development of the Beike platform has led to a big change within the allocation of brokers, in addition to, a decline within the variety of large-scale businesses. Nonetheless, because the competitors intensifies, small- and medium-sized businesses or we name it SMA, have remained steady whereas the standard of the brokers has continued to enhance to catch as much as the competitors. In Shanghai, for instance, SMAs accounted for over 60% of all businesses within the metropolis in 2020. In accordance with the information from our Actual Property Digital Analysis Institute, we imagine that the general allocation of a succesful agent is changing into more and more polarized as a portion of those brokers drawn the main platforms and the remainder drawn SMAs as a part of their start-up ventures.

Moreover, we additionally witnessed the unpresent — the unprecedented competitors within the sector in the course of the 12 months. Platforms competing in new building properties began providing irrationally excessive subsidies and full advances of the commissions in order that to rapidly ramp up their transaction volumes, believing that increased subsidies will translate into increased market share, gamers from different trade have been additionally drawn to the agent service sector which fueled the vicious subsidy competitors much more. In our opinion, the low frequency nature of the actual property transaction and the revenue in search of nature of the actual property brokers means that the subsidy will solely generate increased gross sales performances within the short-term and such ways are an unsustainable technique of the competitors. As an alternative, we imagine that long-term development will probably be pushed by these modern service choices able to bettering agent service efficiencies.

And with that, I’ll now — Mr. Zeng will now present an summary of the strategic enterprise plans that we have developed in 2020. With our SaaS resolution on the core of our enterprise, we place ourselves as a pioneer of the digitalization in Chinese language actual property service trade. Now we’ve got established a growth highway map with our platform on the middle and our three — and with our three key enterprise segments.

To start with, as a platform, we’re dedicated to empowering extra businesses by way of our SaaS providing to proceed increasing our company base. As an unbiased third-party platform, we offer businesses with a complete set of standardized digital and smartphone instruments, making us the best service supplier to satisfy the SaaS wants of SMA. Consequently, the variety of brokers on our platform proceed to develop in 2020 for the ninth consecutive 12 months in a row. Within the fourth quarter, variety of lively brokers on our platform exceeded 283,000, representing a rise of 19% from the identical interval of 2019.

Extra importantly, the variety of lively brokers who act as our SaaS resolution elevated by 30.2% 12 months over 12 months to 557,000. Of those lively brokers, 85% got here from SMA. Throughout our enterprise segments, we stay centered on strengthening our SaaS product to raised facilitate transactions all through — with out getting concerned within the subsidy competitors. For company providers, we additional upgraded our SaaS providing whereas persevering with to strengthen our offline working capabilities.

We launched model 5.zero of our Duoduo property gross sales app to optimize the best way that we set up peer construct and preserve relationship between brokers and property consumers. Through the fourth quarter, we accelerated our agent growth system whereas introducing a sequence of instruments equivalent to on-line property promotion, digital property viewings, and on-line chat rooms to assist brokers to connect with extra property consumers and handle their shopper base extra successfully on-line. Consequently, within the fourth quarter, our agent growth system achieved an company retention price of 88.64%. In the meantime, as we refine our SaaS service, we additional expanded the protection of our offline service crew to 124 cities within the fourth quarter.

We additionally established China’s first digital registry for businesses which now covers greater than one million brokers from 288,000 businesses operated by 19,000 unbiased firms. From our property listings, we proceed to enhance our collaboration with builders. Within the fourth quarter for instance, we centered on increasing our collaboration with key builders and developer tasks whereas prioritizing the standard of their actual property tasks by categorizing the properties by way of our SaaS options and making a warmth map for businesses and developer tasks, we additional refined our property leasing administration course of. Consequently, in the course of the quarter, the variety of new building property tasks on our platform elevated to three,479, representing a year-over-year improve of 11.26% and a sequential improve of 19.23%.

For the total 12 months of 2020, we supplied providers to five,825 new building property tasks, representing a year-over-year improve of 24.15%. The variety of cities coated by our new building property tasks additionally expanded by 22% 12 months over 12 months to 204 cities nationwide. And our property listings and company base that are the 2 key drivers of our new building property gross sales enterprise have maintained their sturdy development. Nonetheless, pressurized by short-term affect, the closed-loop transaction GMV of our new building property was RMB 30.9 billion within the fourth quarter, representing a sequential lower of 6.25% and RMB 107.9 billion within the full 12 months of 2020, representing a year-over-year lower of 23.6%.

Though our determination to not supply subsidies can have a short-term affect on our closed-loop transaction quantity, we stay assured about our long-term development prospects. Secondly, we’ve got noticed growing market alternative for developer facet SaaS options. In response, we launched our property Cloud SaaS options. In accordance with the information from CRIC, 60% of prime 50 actual property developments in China reported more and more their funding within the digitalization of their operations throughout 2020, the place the typical annual funding of this developer reaching RMB 100 million within the interval.

Round this digitalization funding, builders have been extremely centered on on-line advertising and marketing, options to drive that digitalization. Nonetheless, because of the lack of know-how capability — capabilities and excessive upfront funding prices required to construct their very own programs, most actual property builders often depend on third-party SaaS resolution instruments to digitalize their enterprise. Frost Sullivan estimates that the market dimension of the actual property SaaS product in China will develop at a CAGR of 49.3% to RMB 15.9 billion by 2024. Through the fourth quarter, in response to the builders’ demand, we leveraged the company sources, knowledge and product experience that we’ve got accrued over the past 9 years to develop and launch our property gross sales SaaS resolution for actual property builders.

This resolution allows the developer to work together with the platform’s best suited agent and enhance the builders’ transaction efficiencies by digitalizing their gross sales cycle. First, it leverages property challenge administration and buyer profile evaluation providers to digitalize the transaction course of. Second, it gives coupons for gross sales occasions and allows brokers to share property particulars throughout their private community to digitalize the shopper acquisition course of. Third, it offers options that may categorize businesses and handle particular person agent efficiency to digitalize the gross sales channel administration course of.

Fourth, to digitalize the price administration course of. It gives options, the evaluation of the viewership, finances, and the conversion price of the advertising and marketing marketing campaign, thus enabling builders to pick their very own fee charges whereas managing their prices successfully. Beneath this new enterprise mannequin, we typically set service charges from our SaaS options on an annual or month-to-month foundation. Through the use of our whole property gross sales app, builders are capable of assess, comply with the brokers on our platform of their respective cities with a single faucet of their finger. In the meantime, our new developer direct gross sales function is nicely obtained and welcomed by our platform businesses.

By offering extra high-quality on-line property listings and enabling businesses to instantly serve builders, this function helps businesses to enhance their buyer conversion price. Since launching the app, we’ve got established pilot partnership applications for our property gross sales SaaS resolution with greater than 30 of the highest builders, together with China Vanke, Gemdale Company, China Abroad Land and Funding Restricted, and the Nation Backyard Holding Firm Restricted. Based mostly on the information from our Actual Property Digital Analysis Institute, there are at the moment greater than 45,000 property tasks listed on the market in China. This represents immense market potential for our property gross sales SaaS resolution which undertake a month-to-month retainer mannequin for its system service and value-added service charges and for our resale property enterprise, we stay centered on investing in growing our new development initiatives.

Through the fourth quarter, we established a strategic partnership with Centaline Property Company which enabled us to additional improve our closed-loop retail property transaction capabilities. Consequently, our closed-loop resale property transaction GMV within the fourth quarter elevated by 15.4% sequentially whereas our closed-loop resale property transaction GMV in 2020 elevated by 15.26% 12 months over 12 months to succeed in RMB 73.1 billion. We additionally launched a brand new platform Yuancui by way of our partnership with Centaline. On Yuancui we’ll leverage our know-how capabilities, efficient administration course of, and model affect to develop modern, new, and technology-enabled franchising system.

With Yuancui’s prime SaaS choices, we are able to present operational and repair assist to our franchise shops by integrating our intensive sources into the platform. Yuancui has already enabled extra succesful brokers to finish closed-loop transaction on its platform. As of the tip of the fourth quarter for instance Yuancui has expanded into 28 cities to cowl 3,940 brokers throughout 455 businesses. Furthermore, we developed our offline transaction service infrastructure by constructing a community for offline transactions.

At present, the community contains 11 nearly managed transaction service facilities in Shanghai devoted to offer high-quality transaction providers to SMAs on our platform. As well as, our community additionally interfaced with quite a lot of banks and different monetary establishments, together with the Industrial and Business Financial institution of China, China Building Financial institution, Industrial Financial institution, Financial institution of Communications, and the China Bohai Financial institution to combine their monetary providers, equivalent to safe loans, mortgage loans, and a number of funds to different lenders. And in the course of the fourth quarter, closed-loop transaction accomplished by way of our community elevated by 35.9%, sequentially and the GMV of this transaction additionally elevated by 45.9%, sequentially. As for our asset stock enterprise, we proceed to offer efficient operation assist providers.

We leverage our efficient operations and sale assist providers to assist builders monetizing — monetize these parking areas that usually have decrease turnover charges. As such, we effectively decreased parking areas stock for builders. Lastly, please permit me to share an replace on our present outlook for the fourth quarter. Wanting into 2021, we’ll stay centered on upgrading our whole property gross sales SaaS resolution for businesses on our platform.

It will speed up the digitalization of company operations which can enhance the talents of businesses to shut offers on our platform and thus ramp up the income and revenue development of our new building property transaction enterprise. In the meantime, we intention to extend our funding in constructing our growth service system with our property gross sales SaaS resolution at its core. This technique will fulfill builders’ want for digital advertising and marketing options that intention at lowered value and able to serving to builders to enhance their turnover effectivity. Such efforts will assist to carry extra property itemizing onto our platform, in addition to, speed up the income development of our SaaS service and different value-added providers.

Lastly, we plan to speculate extra in our resale property section. We’ll leverage our on-line gross sales options offline protection to ascertain main resale property transaction service mannequin, enabling this section to ramp up its income and obtain a breakeven. Based mostly on these expectations, we’re at the moment forecasting our income to be between RMB 270 million and RMB 290 million within the first quarter of 2021. This forecast relies on our present views of the market setting that are topic to alter.

And with that, I’ll flip the decision over to our CFO, Mr. Pan Jiaorong, to evaluate the quarter’s monetary outcomes.

Pan JiaorongChief Monetary Officer

[Foreign language]

Warren WenMonetary Controller

OK. Thanks, and CFO will now present a better look into the fourth-quarter monetary outcomes. Earlier than we start, please word that every one the numbers are in RMB phrases until in any other case indicated and income within the fourth quarter of 2020 decreased to RMB 622.Four million. The lower was attributable to the corporate’s plan to reallocate sources between the income from base fee which had decrease revenue margins because of the intensified market competitors and income from value-added providers and new enterprise initiatives, such because the launched SaaS resolution for numerous platform members with which the corporate tried to diversify into future income stream and improve revenue margins.

And income within the fourth quarter of 2020 — uh, the course of income within the fourth-quarter 2020 decreased to RMB 570.6 million and the lower is attributable to the lower within the fee payable to the brokers. And on the identical time, as a result of the corporate — due to the corporate’s plan to diversify the long run revenue stream in order that the corporate offers numerous SaaS options and ensuing within the related value will increase and the gross revenue within the fourth quarter of 2020 decreased to RMB 51.Eight million. Gross margin within the fourth quarter of 2020 decreased to eight.3%. Working bills within the fourth quarter of 2020 which included share-based compensation bills of RMB 24.Three million, decreased by 85.7 to RMB 128.Three million from RMB 199.7 million in the identical interval of 2019 which included share-based compensation bills of RMB 745.9 million.

Gross sales and advertising and marketing bills within the fourth quarter of 2020 elevated to RMB 32.2 million from RMB 17.1 million in the identical interval of 2019. The rise was primarily because of the firm’s elevated spending on model recognition and selling and advertising and marketing actions associated to its new SaaS resolution supply to varied platform members within the fourth quarter of 2020. Product growth bills within the fourth quarter of 2020 have been RMB 7.9 million — RMB 17.9 million, in comparison with RMB 506.Eight million in the identical interval of 2019. This lower was primarily attributable to the lower of the share-based compensation bills within the fourth quarter of 2020 to RMB 15.6 million from RMB 435.1 million in the identical interval of 2019.

To a lesser extent, the lower was additionally because of the firm’s determination to shift its focus to increasing the dimensions of the product growth crew to optimizing working effectivity, in addition to, optimize its product growth construction with a concentrate on the corporate’s SaaS resolution which result in the lower within the personnel-related bills within the interval. Basic and administrative bills within the fourth quarter of 2020 have been RMB 25.2 million, in comparison with RMB 375.9 million in the identical interval of 2019. This lower was primarily because of the lower in share-based compensation bills within the fourth quarter of 2020 to RMB 8.7 million from RMB 310.Eight million in the identical interval of 2019. To a lesser extent, the lower additionally resulted from the corporate’s effort in implementing value management initiatives in response to the affect of COVID-19.

Internet loss within the fourth quarter of 2020 have been RMB 92.Eight million, in comparison with the online lack of RMB 691 million in the identical interval of 2019 and non-GAAP web loss within the fourth quarter of 2020 was RMB 68.5 million. Fundamental and diluted web loss per American Depository Shares, ADS, within the fourth quarter of 2020 have been each 1.15. As compared, the corporate’s fundamental and diluted web loss attributable each to the peculiar share per ADS in the identical interval of 2019 have been each RMB 22. Every ADS signify 25 Class A peculiar shares of the corporate.

Now I will even briefly evaluate our full-year outcomes. Income in 2020 is RMB 2,451.Three million. Value of income in 2020 is RMB 2,036.Eight million. Gross revenue in 2020 is RMB 414.5 million.

Gross margin in 2020 is 16.9%. Working bills in 2020, together with share-based compensation bills of RMB 102.Eight million, decreased by 50.5% to RMB 640.5 million from RMB 1,293.Eight million in 2019. Gross sales and advertising and marketing bills in 2020 have been RMB 38 million, in comparison with RMB 48.Four million in 2019. Product growth bills in 2020 have been RMB 301.Four million, in comparison with RMB 725 million in 2019.

Basic and administrative bills in 2020 have been RMB 301.1 million, in comparison with RMB 520.Four million in 2019 and web loss in 2020 was RMB 221.Four million, in comparison with RMB 510.Four million in 2019. Non-GAAP loss — web loss in 2020 was RMB 118.6 million. Fundamental and diluted web loss per ADS in 2020 have been each RMB 2.76. As of December 31st, 2020, we had money and money equivalents, restricted money, and brief investments of RMB 945 million, short-term financial institution borrowings of RMB 443.Four million, in addition to, unutilized banking services of RMB 460.5 million.

For the fourth quarter of 2020, web money utilized in working exercise was RMB 225.9 million. And that concludes our ready remarks for immediately. And operator, we at the moment are able to take questions.

Questions & Solutions:

Operator

[Operator instructions] Now we have a query coming from the road of Lisa Thompson from Zacks Funding. Please go forward.

Lisa ThompsonZacks Funding Analysis — Analyst

Good morning. Sorry I am unable to ask my questions in Chinese language first. I wish to know, given your change in technique for this 12 months, what do you count on gross margins to be going ahead? And likewise, what are your plans for spending on working bills?

Warren WenMonetary Controller

Let me translate your query first. [Foreign language] Pardon me, do you — are you asking the working bills within the coming 12 months or the medium-term or long-term?

Lisa ThompsonZacks Funding Analysis — Analyst

This 12 months.

Warren WenMonetary Controller

This 12 months. You imply 2021?

Lisa ThompsonZacks Funding Analysis — Analyst

Sure.

Zeng XiCo-Chief Government Officer

[Foreign language]

Warren WenMonetary Controller

So to reply your first query, we can have two mannequin coexist for the approaching 12 months — for the 12 months 2021. The primary one is the brand new property gross sales fee income. We most likely will stay a gross revenue margin at an analogous degree with 2020 at 15% to 20%. And on the identical time, we’ve got newly launched a SaaS resolution providing to our developer base which is a SaaS mannequin with month-to-month or yearly subscription payment revenue with gross revenue margin at 60% to 80% within the years to come back.

Zeng XiCo-Chief Government Officer

[Foreign language]

Warren WenMonetary Controller

For the product growth bills, we imagine as a result of our product growth crew is just about mature thus far and we imagine the rise in share as compared with 2020 have been inside 10% to 20%. And relating to the gross sales and advertising and marketing bills, as a result of we’ve got established a powerful presence on the offline service to our agent base and the developer and our offline service crew are just about mature and we imagine that crew could possibly be reused time and again sooner or later in order that we imagine the proportion within the elevated — share of as a rise within the gross sales and advertising and marketing bills most likely will stay steady. That’s the improve will probably be minimal. And do I reply your query, madam?

Lisa ThompsonZacks Funding Analysis — Analyst

Does that add then to across the identical quantity as you spent in 2020 to be RMB 640 million?

Warren WenMonetary Controller

RMB 640 million, you imply — what do you imply by 640 —

Lisa ThompsonZacks Funding Analysis — Analyst

Complete working. Uh, whole working bills.

Warren WenMonetary Controller

Complete working bills. Sure. Sure. [Foreign language]

Zeng XiCo-Chief Government Officer

[Foreign language]

Warren WenMonetary Controller

OK. Our co-CEO anticipate that there will probably be a minimal improve of this total working bills by like 10% — inside 10%.

Lisa ThompsonZacks Funding Analysis — Analyst

OK. And so far as gross margin do you count on it to extend from this 8% going ahead?

Warren WenMonetary Controller

[Foreign language]

Zeng XiCo-Chief Government Officer

[Foreign language]

Warren WenMonetary Controller

The reply is actually sure as a result of we’ve got launched the SaaS resolution providing to our developer base with a a lot increased gross revenue margin, as stated earlier than, and so far as the penetration price and the proportion of any such income will increase for the years to come back and we imagine the general gross revenue margin will improve within the following quarter and years.

Zeng XiCo-Chief Government Officer

[Foreign language]

Warren WenMonetary Controller

And likewise to our conventional fee — base commissioning income, we imagine with the continued in-depth service to our developer base and our agent base, we additionally imagine the gross revenue margin as a share will proceed to extend within the years to come back.

Lisa ThompsonZacks Funding Analysis — Analyst

OK. Nice. One final query. Only for us U.S.

people, may you simply describe the state of the Chinese language actual property market now? Is it 100% again to regular or are you continue to recovering from shutdowns?

Warren WenMonetary Controller

[Foreign language]

Zeng XiCo-Chief Government Officer

[Foreign language]

Warren WenMonetary Controller

OK. I am pleased to say that principally, the Chinese language actual property market is principally again to regular and we anticipate sooner or later few years the transaction quantity of the complete nation most likely stay at very — as excessive as doable, like RMB 15 trillion for brand spanking new building property and RMB 6 trillion for second-hand property — resale property.

Zeng XiCo-Chief Government Officer

[Foreign language]

Warren WenMonetary Controller

And one other level we’ve got seen is the native authorities, the Chinese language authorities is controlling the promoting worth of the brand new building property worth and likewise the resale property worth and in order that developer’s revenue margin is dropping considerably. And in order that the builders are taking no matter effort to construct up their very own gross sales crew in order that to cut back the price from promoting the property. In order that this is likely one of the alternative that we’ve got seen for our future growth, specifically, our digitalization for the gross sales channel.

Lisa ThompsonZacks Funding Analysis — Analyst

OK. Nice. Thanks. Thanks for answering my questions.

Warren WenMonetary Controller

Yeah. You are welcome. Is there some other questions?

Operator

So we do not need any additional questions at this second. Again to you. So we do not need any additional questions at this second. Again to you, sir.

Warren WenMonetary Controller

OK. That may conclude immediately’s earnings launch convention name. Thanks, operator.

Operator

[Operator signoff]

Warren WenMonetary Controller

Thanks.

Period: 64 minutes

Name members:

Warren WenMonetary Controller

Zeng XiCo-Chief Government Officer

Pan JiaorongChief Monetary Officer

Lisa ThompsonZacks Funding Analysis — Analyst

Extra DUO evaluation

All earnings name transcripts

This text represents the opinion of the author, who could disagree with the “official” suggestion place of a Motley Idiot premium advisory service. We’re motley! Questioning an investing thesis — even one in every of our personal — helps us all assume critically about investing and make choices that assist us grow to be smarter, happier, and richer.

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