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Fang Holdings Limited (SFUN) Q4 2018 Earnings Call Transcript

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Fang Holdings Limited  (NYSE: SFUN)
Q4 2018 Earnings Call
April 26, 2019, 7:29 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Q4 2018 Fang Holdings Limited Earnings Conference Call. At this time, all participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session. (Operator Instructions)

I would now like to hand the conference over to your first speaker for today, Ms. Jessie Yang. Please go ahead ma'am.

Jessie Yang -- Investor Relations Director

Thank you, operator. Hi, everyone and welcome to Fang's fourth quarter 2018 earnings conference call. Joining us today to discuss Fang's results are our Chairman, Mr. Vincent Mo; our CEO, Mr. Jian Liu; and our acting CFO, Mr. Zijin Li.

After the prepared remarks, our management will answer your questions. Before you 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 risks and uncertainties. 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 fourth quarter financials after which our management will start the Q&A session.

Fang reported total revenues of $82.2 million in the fourth quarter of 2018. This is mainly -- revenue from marketing services was $41.5 million in the fourth quarter of 2018, a decrease of 16.3% from $49.6 million in the corresponding period of 2017. This is primarily due to a slowdown in real estate market and the continued impact of tightening policies. Revenue from listing services was $24.4 million in the fourth quarter of 2018. This is a decrease of 41.6% from $41.8 million in the corresponding period of 2017. This is caused by a decrease in the number of paying members.

Revenue from value added services was $11.1 million in the fourth quarter of 2018. This is an increase of 28.5% from $8.6 million in 2017 driven by the increased demand for database and research services. Revenue from financial services was $2.4 million in the fourth quarter, a decrease of 35.3% from $3.6 million in the corresponding period in 2017. Revenue from e-commerce services was $2.8 million in the fourth quarter, a decrease of 67.1% from $8.5 million in the corresponding period in 2017. This is due to Fang's transformation back to a technology-driven open platform model. The cost of revenue was $12.4 million in the fourth quarter. This is a decrease of 58.1% from $29.7 million in the corresponding period in 2017. This is due to the optimization in our cost structure.

Operating expenses were $57.9 million, an increase of 24.4% from $46.5 million in the corresponding period in 2017. Selling expenses were $13.8 million in the fourth quarter, a decrease of 50.2% from $27.8 million in the corresponding period of 2017. This is driven by a decrease in advertising and promotional expenses and deduction of debt cost. General and administrative expenses were $43.8 million in the fourth quarter, an increase of 131.5% from $18.9 million in the corresponding period in 2017. This is due to an increase in bad debts. Operating income was $11.9 million in the fourth quarter compared to $36 million in the corresponding period in 2017. This is caused by the decline in revenue from listing and e-commerce services and increase in bad debt.

Change in fair value of securities included in the investment income for the fourth quarter was a loss of $34.4 million. The amount represents changes in fair value of securities in accordance with FASB ASU 2016-01 which became effective on January 1st, 2018. Income tax expenses were $27.5 million in the fourth quarter. This is compared to income tax expenses of $13.1 million in the corresponding period of 2017. Net loss attributable to Fang's shareholders was $48.2 million in the fourth quarter compared to net income of $20.6 million in the corresponding period of 2017.

Loss per ordinary share and ADS were $0.54 and $0.11 in the fourth quarter compared to net income per fully diluted ordinary share and ADS of $0.23 and $0.04 respectively in the corresponding period in 2017. Adjusted EBITDA defined as GAAP net income before share based compensation, investment income, change in fair value of securities, income taxes, income expenses, interest income and depreciation was $19.3 million in the fourth quarter, compared to $41 million in the corresponding period of 2017. As of December 31st, 2018, Fang had cash and cash equivalents, restricted cash and short-term investments of $463.6 million compared to $547.1 million as of December 31st, 2017.

Fiscal year 2018 revenues. Fang reported total revenues of $303 million for 2018. This represents a decrease of 31.8% from $444.3 million in 2017. This is mainly due to a decline in revenues from listing and e-commerce services. Revenue from marketing services was $119.7 million for 2018, a decrease of 19.8% from $149.3 million in 2017. This is due to a slowdown in the real estate market and the continued impact of tightening policies.

Revenue from listing services was $113.5 million for 2018, a decrease of 31.3% from $165.4 million in 2017. Revenue from other value-added services was $36.4 million, an increase of 22% from $29.8 million in 2017. Revenue from financial services was $18.1 million, an increase of 49.8% from a $12.1 million in 2017. Revenue of e-commerce services was $15.4 million in 2018, a decrease of 82.5% from $87.8 million in 2017. Cost of revenue for 2018 was $58.6 million. This is a decrease of 66.5% from $174.6 million in 2017. Operating expenses were $204.5 million for 2018. This is a decrease of 10.1% from $227.5 million in 2017.

Selling expenses were $69.5 million in 2018, a decrease of 23.8% from $91.3 million in 2017. General and administrative expenses were $138.2 million in 2018, an increase of 1.9% from $135.7 million in 2017. Operating income was $39.9 million for 2018 compared to operating income of $42.2 million in 2017. The change in value of security included in investment income for the fiscal year with the loss of $168.7 million. This amount represent changes in fair value of securities in accordance with FASB ASU 2016-01, which became effective on January 1st, 2018. Income tax benefits were $11.9 million for 2018 compared to income tax expenses of $21.4 million for 2017. Net loss attributable to Fang's shareholders was $117.3 million for 2018 compared to net income of $21.7 million for 2017.

Loss per fully diluted ordinary share and ADS were $1.31 and $0.26 in 2018 compared to net income per fully diluted ordinary share and ADS of $0.24 and $0.05 in 2017. Adjusted EBITDA was $81.7 million in 2018 compared to $60.9 million in 2017. As of December 31st, 2018, Fang had cash and cash equivalents, restricted cash and short-term investments of $463.6 million compared to $547.1 million as of December 31st, 2017. Based on current operations and market condition, Fang's non-GAAP net income is expected to be profitable for the fiscal year ending December 31st, 2019. These estimates represent Fang management's current and preliminary view which are subject to change. And this is our fourth quarter financials. Now, operator we will be open for Q&A session.

Thank you.

Questions and Answers:

Operator

Thank you, ma'am. Ladies and gentlemen, we will now begin the question-and-answer session. (Operator Instructions) We have a question from the line of Miranda Zhuang. Please ask your question.

Miranda Zhuang -- Bank of America Merrill Lynch -- Analyst

Thank you. Good evening, management. Thank you for taking my questions. It seems that the transaction of the property has recovered a bit in late March and early April. Can management share with us your view for the property market this year? And what's the sentiment of the advertising purchase on the property developers?

And my second question is about the listing business. It seems that the competition for the listing business has become more intensified. Can management share with us your strategy this year for this business, especially on the traffic side and also empowering the real estate agents? Thank you.

Jian Liu -- Chief Executive Officer

Okay. I will take the first question and hand over to Zijin. Can you take the second one? About the market, so Miranda as you mentioned, the market did recover shortly in quarter one, especially after Chinese New Year. The market has been good, Q2 (ph) not -- or about a week ago. So that's the situation. And most recently in the past one week, the top leadership, you know, reiterated again that the property market is -- should remain under-regulated, under heavy policy control.

So that's the situation. To my knowledge or my expectation with whole year will be -- the market will be -- keep the current status, which means, will be good, you know, to my understanding. Because we had a two year slowdown in the past. So, the accumulated demand in the two -- past two years, probably will be released this year 2019. So my judgement will be -- the market will be reasonably good for the rest of the year. But that said, I don't think that top management, the government will allow the -- another boom of property market again in 2019. So that's the situation to us. Our advertising has seen -- we have seen a growing momentum in our contract. We still need to have the cashing (ph) yet, but contract wise, we have seen, you know, double digit growth. (foreign language) Yeah. We have spent about 30% to 40% increase in the advertising contract. The listing side (foreign language) and the listing side which is called resale market which is also increasing or comparing to advertising, it's not as fast as the adverting in the market. So that is the situation of the market. So Zijin, can you answer the second question?

Zijin Li -- Acting Chief Financial Officer

Second question regarding to the listing. Currently for the fourth quarter in 2018, we can see the traffic of the website and the paying membership, number of peoples. And in the first quarter of 2019, there is definitely a increase. Due to the business strategy in the listing side, we are now pushing the agencies to be directly linked to our website. So the properties they listed on our website is more generous and it's like -- is reduced some human mis-statement in the listing -- listing introductions. So basically that's the main focus, we are doing right now to increase the quality of the listing.

Miranda Zhuang -- Bank of America Merrill Lynch -- Analyst

Can I have a follow up question? So for -- it looks like the research and data base services has been in a very good growth momentum since FY '18. So what's the strategy for this business in FY '19?

Jian Liu -- Chief Executive Officer

You're right. Our data analytics sector has been growing continuously. So this part, we call it China index holding, which is the part we're going to spin off as planned it. We had -- separately we had this further long we had over 30% growth last year and by quarter to quarter comparison, year-over-year. So we announced before that we're going to spin off that part of business. They're going to independently list with a stock exchange market. So that's the situation. We expected that the data and analytics business is going to continue their growth momentum in the whole year. Hopefully, we can have 30% growth top line, bottom line as well. However that said spending on our investment, spending our -- spending on promotion, marketing and the other R&D expenses. So that's the situation for the data and analytics business.

Miranda Zhuang -- Bank of America Merrill Lynch -- Analyst

Okay. I see. Thank you very much.

Jian Liu -- Chief Executive Officer

Thank you.

Operator

We have the next question from the line of Frank Chen. Please ask your question.

Frank Chen -- Macquarie -- Analyst

Thanks management for taking my question. This is Frank Chen from Macquarie. I have one quick question. As the market is recovering this year and our business is stabilizing and how should we think of our margin trend in 2019 and onwards? Can management share more color on the margin? Thanks very much.

Jian Liu -- Chief Executive Officer

The margin trend for the company, we are still to be more cost effective during the past years. And I think we still have loans to be more efficient in the way, we're doing our business.

Frank Chen -- Macquarie -- Analyst

Okay. Thank you.

Operator

(Operator Instructions) As there are no questions, I'd like to hand the call back to your speakers for any closing remarks. Thank you.

Jessie Yang -- Investor Relations Director

Thank you, operator. Thank you everyone for joining our call today and we look forward to speaking with you for our 2019 quarter one conference call. Thank you.

Operator

Thank you, Ma'am. Ladies and gentlemen, that does conclude our conference for today. Thank you for participating. You may all disconnect.

Duration: 23 minutes

Call participants:

Jessie Yang -- Investor Relations Director

Miranda Zhuang -- Bank of America Merrill Lynch -- Analyst

Jian Liu -- Chief Executive Officer

Zijin Li -- Acting Chief Financial Officer

Frank Chen -- Macquarie -- Analyst

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