Q4 2020 Fangdd Network Group Ltd Earnings Call

March 26, 2021

[music].

Ladies and gentlemen, and keep on finding body and weapons and Frank.

Network growth.

Fourth quarter and full year of 23.

Pardon me and conference call at.

At this time all participants on this.

And only after the management and some prepared remarks and even.

Have a question and answer session.

Note that day.

And he's been with it got it.

I'd now like to hand, the conference or what your speaker host today, Mr. Warren ranked financial controller of the company.

Go ahead Sir.

Thank you operator, and Hello, everyone and thank you all for joining us on today's call and company has announced its fourth quarter and full year 2020 result, today and earnings releases and all are available on the company's IR website. Today, you will hear from our co CEO, Mr and see who was stopped the call.

With a review on our progress.

And on industry dynamics and details on.

Development strategies and 2020.

Afterwards, our CFO Mr. Jos on will go over with our financials before we open up and colorful crushing.

Our management team will deliver their remarks in Chinese and I will provide the English translation.

Before we continue I would like to refer you to go out to our Safe Harbor statement in our earnings press release, which applies to this call as we will be and making forward looking thing.

Please also note that we will discuss non-GAAP measures today, which are more thoroughly explained and reconciled to the lowest and comparable measures reported under the generally accepted accounting principles.

And our earnings release, and our filings with the SEC.

And with that and I will now turn the call over to our co CEO and Mr. Turnkey and please go ahead Sir.

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Hello, everyone and welcome to our fourth quarter of 2020 earnings call and.

Mr Chairman I'd like to start off the call with a review of the relative market and 2020 during 2020 real estate developers are starting to adopt digital marketing and their operation.

<unk> developed a face increasing cost pressure and.

Relying more on the sales channel to achieve a higher turnover rate.

And our sales channel commissions continued to increase record for me.

The COVID-19 pandemic in 2020 also further celebrated digitalization, calling from various industries.

As more consumers move online and in general the reliance on online sales channels from homebuyers have resulted in domestic development on the picture.

<unk> brother stick transaction services.

However, as the real estate industry moves to focus on reducing inventories and the government's implementation on a series of initiatives in 2020, such as the property price caps and the three mines policy developers have a price additional pressure on their profit margins.

As a result, reducing costs and improving turnover and efficiency have become core issues for developers and based on the data from our relative Digital Research Institute Institute The commission rate for ordinary.

Residential property sales that exceeded 3% in 2020. According to a report from C and for your financial the average commission rate for the retail property has remained below 2% and for the past two years as a result, we believe that the increasing trends and commission rates for new cars.

Structure and property is nine and long term nor sustainable developers are already located at our first ring of the founder Chang towards the real estate agent service sector and the adoption of the pit.

And your total marketing solutions, maybe reshape the role that platform price as that sounds the channel going forward.

We have also observed a series of structural changes and the buildup for Asia and service sector. The advancement of our bakery platform has led to a significant change in the allocation on patients as well and I say a decline in the number on the largest scale agencies, however, as the competition and.

Testifies small and medium sized agencies and we called it at and Ace has remained stable while the wider.

And why the quality of their agents has continued to improve to catch up to the competition and some high for example S. M. A.

On bid for over 60% of all agencies in the city and 2020. According to the data from our real estate and Digital Research Institute Institute, We believe that the overall allocation of the capable agents. These are becoming increasingly polarized.

Portions of this agent drawn the leading platforms and the rest are drawn at ace as part of their startup.

Ventures.

Additionally, we also witness the unprison unprecedented competition in the sector. During the year platforms are cut and peaking in new construction properties started offering irrationally high subsidies and flow.

Advances of the commissions so that they're quickly ran up there as transaction volumes.

And that higher subsidies will translate into higher market share players or from other industry were also attracted to the agent service sector reached puberty vicious subsidy competition and even more and all.

Looking in the low frequency and nature or real estate transaction and the profit reaching nature of your ability for agents.

So just as a subsidiary of women on.

And we will only generate higher standard performances and the short term and such Capex.

And sustainable means tougher competition and staff, we believe that that long term growth will be driven by dosing.

Relative to service offerings and capable of improving agent service efficiencies.

And with that I would now and we certainly will now for Y and overview of the strategic business and plants that will develop in 2020.

And our stock looser and at the core of our business, we position ourselves as the pioneer offer digitalization and Chinas relative service industry and all.

We have established that depend on my roadmap with our platform on the center and our three and with our three key business segments.

First of all as a platform we are committed to empowering more agencies through our cost offering.

Sure continue expanding our agency base.

And that's an independent third party platform people wise and agencies with a comprehensive set of a standardized digital and smartphone twos, making us the idea of a service provider and computer fastener yourself of SMA.

As a result and number of patients on our platform continued to growth in 2020 for the ninth consecutive and year in a row in the fourth quarter number of active agents on our platform exceeded 283000, representing an increase of 19% from the thank you and all of 2019 more and.

Importantly, the number of active agents, who accessed our SaaS solution increased by 32% year over year to five on.

And 57000.

On the active patients 85% came from <unk>.

Across our business segments, we remain focused on strengthening our cash products to better facilitate transactions through out without getting involved in the subsidy competition.

For agencies and services, we further upgraded our SaaS offering while continuing to strengthen our offline operating capacity capex.

Capabilities relaunch.

And the launch version five on all of our thoughts on property sales have to optimize the way that we establish free appealed and maintain relationship between agents and property buyers during the fourth quarter, we accelerated our agent development system, while introducing a series of tools such as online property promotions virtual property.

Wings and online chat rooms to help agents to connect to more.

Poverty buyers and manage their client base and more effectively online and as a result in the fourth quarter, our agent development system achieve and agency retention rate of 80, 864%.

And Meanwhile, as we find our self service. We further expanded the coverage also our offline service team to 102040 in the fourth quarter. We also established that China's first digital registry for both the agencies, which now covers more than a million agents.

And 288000 agencies operated by 19000 independent independent companies.

From our property listings, we continue to improve our collaboration with developers.

And the fourth quarter for example, we focus on expanding our collaboration with developers and developer projects, while prioritizing the quality of their real estate projects.

Categorizing the properties through our possible or something creating a heat map for agencies and developer projects. We further refine our property lease time management process and is it.

And it's out during the quarter and minimal for new construction and property projects on our platform increased to 3470, non representing a year over year increase of 11, 26% and a sequential increase over 19 on.

23%.

For the full year for 2020, we provided services to 5825, new <unk>.

Construction and property projects, representing a year over year increase over 24, 15% and the number of cities covered by our new construction and property costs and also expanded by 22% year over year to 204 cities nationwide.

And our approach to these things and agency base, which are the two key drivers of our new construction and property sales and business have and maintain their robust growth. However, pressurized by short term impact.

Luke Chen sections, and the envy of our new construction and property was RMB 39 billion in the fourth quarter, representing a sequential decrease of 625% and.

And the $107 9 billion and a full year over 2020, representing a year over year decrease over 26, 6%.

So our decision not to offer subsidies with half a stroke and impact on our close loop transaction volume, we remain confident about our long term growth prospects.

Secondly, we have observed increase and market opportunity for developer side soft solutions and risk.

Strong.

We launched our property and cloud stocks evolution.

According to the data from the <unk>.

I see 60% of its top 50 relative to develop and channel reported increasingly there and investment in the digitalization over their operation through and 2020.

Whereas the average annual investment over the balance are reaching RMB 100, and the area in the period and.

Atlantis Digitalization investments developer, we're highly focused on online marketing solutions will drive debt just utilization.

Nonetheless, due to the lack of a technology capacity and capabilities and the high upfront investment costs required to deal with their own systems Most railroad.

Real estate developers, usually rely on third parties, our solution tools to digitalize their business across sort of and estimate that market size over ballistic thoughtful product and China will grow at a CAGR of 49, 3% to RMB 15 9 billion by 2024.

During the first quarter and response to the developers commands.

And we leverage the agency resources data and product expertise that we have accumulated over the not lots and lots of years nine years to develop and launch our properties South fast solution for developers list.

And this solution enables developers to interact with the platforms and most of the Super Bowl agents and improve the developers transaction efficiencies by digitizing their sales cycle first it Leverages property project management and customer profile and analysis services to digitalize the transaction.

And process.

And second offers coupons for south events, and and they both agents and so share property details across their personal network to digitalize the customer acquisition process.

Third it provides fisher stick and categorized agencies and manage individual agent performance to digitalize the sales channel management process.

And to digitalize the cost management process.

Specious analysis of the viewership.

Budget and the conversion rates are for marketing campaign, thus, enabling developers to surrender on commission rates and while managing their cost effectively and.

Under this new business model, we generally service fees from our SaaS solutions on an annual or monthly basis.

By using our total property South App developers are able to pass on the agents on our platform in their respective cities.

Single tap.

Their finger and.

And while our new developer and direct sales feature has well received and welcomed by our platform agencies.

Moving more high quality online coffee and other things and enabling agencies to directly sure.

Developers this feature health agencies to improve their customer conversion rates.

Since launching the App, we have fixed up as a pilot.

Our partnership programs for our properties with SaaS solution with more than 30 of the top developers and clothing channel banking Gentile Corporation channel overseas lands and investment and limited and the country, causing holding country Garden holding company limited based on the data from our real estate digital.

<unk> Research Institute.

Come through more than 45000 property projects with force.

And in China. This would represent in men's market potential for our properties out facet solution.

Rich adopt and monthly retained them overall for it systems and service and the value added service fees.

And for our retail property business, we remain focused on investing and investing and developing our new growth initiatives.

During the first quarter, we established a strategic partnership with a central line property agency, which enabled us to further.

And enhance our closed book retail property transaction capabilities and as a result, our clothes smoked resale competition session and <unk> in the fourth quarter increased by 15, 4% sequentially, while our gross retail property transaction, Jamie and 2020 increased by 15, and 26% year over year to reach on B.

$73, one theory and.

We also launched and new platforms and trade through our partnership with centerline on jet and trade, we will leverage our technology Technolo Tech technology capabilities.

Effective management process and different brands influence to develop and the initial innovative new and technology enabled franchising system.

And chase top SAS offerings.

We can provide operational and service support to our franchise stores by integrating our extensive resources into the platform and trade has already enabled more capable agents, who completed gross loop transaction on its platform.

And on the fourth quarter. For example, we on trade has expanded into 28 cities to cover 3948 agents across 455 agencies.

Moreover, we develop our own financial section and service infrastructure by computing and network for off lunch and section translate and network includes 11 towards fully managed.

Transaction service center in Shanghai, and dedicated to for why high quality transactions that are sold to SMA on our platform. In addition, our net were also interfaced with a number of the banks and other financial institutions.

Including the industrial and commercial bank of China, China Construction Bank Industrial Bank Bank of Communications and the channel for high bank to integrate their financial services, such as a secure loans mortgage loans and loans with payments or other lenders.

And.

During the fourth quarter, our close loop transaction completed two hour.

Network increased by 335, 9% sequentially and the.

Jimmy of this transaction also increased by 45, 9% sequentially.

As for our.

And for inventories business, we continue to provide effective operation support services.

We live and our effective operations and sales support services to help developers monetize saying monetize those parking spaces that typically have lower turnover rates.

As such we.

Efficient for you reduced parking spaces inventories for developers.

Lastly, please please allow me to share and update on our current outlook for the fourth quarter looking into 2020. One we will remain focused on upgrading our total property sales force touch solutions for agencies on our platform. This will accelerate the digitalization of agency operations.

Which will improve the ability of agencies to close deals on our platform and thats ramp up the revenue and profit growth of our new construction property transaction business and.

While we aim to increase our investment and building our development service system.

And with our property and staff cost solution at its core this system will fulfill developers and need for digital marketing solutions.

And at lower cost.

And capable and also helping developers to improve debt turnover efficiency.

Such.

<unk> will help to bring more appropriately listing onto our platform as well as to accelerate the revenue growth of our cloud services and other value added services.

Lastly, we plan to invest more in our retail property segment.

We'll leverage our online spouses solutions offline coverage to establish and leading with our properties and section and service model and then.

And this statement to ramp up its revenue and achieve a breakeven.

Based on this sector expectations, we're constantly forecasting our revenue to be between.

And the 270 million and RMB 219 million and the first quarter over 2020. One day forecast is based on our current views of the market environment, which are subject to change.

And with that I'll turn the call over to our CFO, Mr. Peng carrier on to review the quarter's financial results.

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And counting family channel.

And on each of them in Pennsylvania.

And I mean, do you need to change out to actually on.

And just one quarter out yet and patterns as LIBOR moves on.

And I'm doing that.

And Jackie Kelly pathogen and finding and so I just can't do without it sounds very interesting and attempting on honey and Yankees and people that buy anything and Wayne Tim.

And then b on each OEM Julie Thank you.

And you'd be well and he's been the gamestop and we are.

Please proceed with the accounting and whole family to try and then on each of them and you make banking easier and you can see the film and shop, so actually what he thinks the weighted.

And so that's one thing and the content on our honeymoon.

The increase in wait and maybe some channel.

And then on each of them is.

And I think recently and you'd be thinking.

Non-GAAP.

That can increase and where they need to go.

And I think on Union.

Nathan Hey, Dan Campbell.

And then thank you again.

Thanks on each of them and compete against <unk>.

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And Neil and I can't dance laden and happens on immune tenure on that yet.

I think on and your net shortly and maybe I should see Dan and I.

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On India and China.

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And I mean on India, and plenty family and then be thank you.

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And our Union and.

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Hum and increasing Julie and you'd be argued she didn't yet.

And your Army Army and Xiaomi and thanks to you.

And so you'll know campaign cause I can't think of DAU show Tianjin and Chengdu.

Thank you Wayne and.

And maybe Joe again.

Yeah.

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Suzanne.

Issue and income children on.

And even honey and MPC and opinion.

And I don't assume that same thinking early and you need to be I think I don't know yet.

I would as I and I'm sure.

Okay. Thank you and our CFO will now provide a closer look into the fourth quarter financial results before before I begin. Please note that all the numbers are in RMB terms unless otherwise indicated.

And the revenue and the first quarter over 2020 decrease of RMB $622 4 million. The decrease was attributable to the company's and plan to reallocate resources between the revenue from base Commission, and which had lower profit margins due to the intensified market competition and the revenue from value added services and new business wins.

Initiatives, such as sort of launched faster.

<unk> solutions for various platform participants with which the company attempted to.

Diversify into future revenue stream and increase profit margins and.

Revenue in the fourth quarter over 2020 eight.

But the cost of revenue in the.

Our fourth quarter on 2020 decreased through R&D.

$576 million and decrease.

And.

Attributable to the decrease in the commissions payable to the agents.

And at.

At the same time.

And because the company.

Because of the companies trying to.

Diversified their future income stream.

So that the company provide various fast solutions and price.

Resulting in the Ralph and relevant cost increases.

And the gross margin gross profit and the fourth quarter over 2020 decrease too.

On the $51 8 million gross margin and the fourth quarter over 2020 decreased to eight 3%.

Operating expenses and the first quarter and for 2020, which included share based compensation expenses of RMB 24, 3 million decreased by $85 seven two and the 128 on.

3 million from RMB, $899 7 million and the same period of 2019.

Included share based compensation expenses of RMB $745 9 million.

Sales and marketing expenses and the fourth quarter over 2020 increased to RMB 32, 2 million from RMB seven.

$17 1 million and the same period of 2019 day.

The increase of primarily due to the company's increased spending on brand recognition and promoting and marketing activities related to eats and use our solution offers to various platform participant in the fourth quarter over 2020.

Product development expenses, and the fourth quarter over 2020 were RMB, seven 9 million $17 9 million compared to RMB $506, eight and area and the same period of 2000 2019. This decrease was primarily.

<unk> to go to the decrease of share based compensation expenses and the fourth quarter over 2022 and the.

$15 6 million from RMB, $435 1 million and the same period of 2019.

And lastly extend decrease was also due to the company's decision to shift its approaches.

Spending the size of a product development team to up to optimizing operating efficiency as well as soft demand and product development structure with a focus on the company's SAP solution, which leads to a decrease in your personal related expenses and the period.

General and administrative expenses and the fourth quarter on for 'twenty, and 'twenty were RMB $25, two Amelia and compared to RMB 370, or $75 9 million and in the same period of 2019. This decrease was mainly due to the decrease in share based compensation expenses and the fourth quarter over 2020, four and $8 7 million for him and he is right.

<unk> hundred 10, 8 million same period over 2019 to a lesser extend debt decreased also resulted from the company and.

Implementing cost control initiatives in response to the impact of COVID-19.

Net loss in the fourth quarter over 'twenty, and 'twenty were assigned and $92 8 million and compares with a net loss of RMB 600, 691, Neely and in the same period.

2019.

And on non-GAAP net loss in the fourth quarter over 2020 was six.

68, five for me and Ian.

Our basic and diluted net loss net loss per American depository shares Ats and the first quarter of 2020 were both.

One on 15 being.

In comparison, and the company's basic and diluted net loss attributable to voted on in order to share for <unk> and the same period.

Uh huh.

And the same theory of 2019 were both RMB 22.

They represent 25 class a ordinary shares of the company.

I will also briefly review our full year results revenue in 2020 is $2451 3 million cost of revenue and 2000 22000.

$36 8 million gross profit in 2020 is 400 and force.

<unk> thousand 14, five chameleon gross margin in 2000, and frontier is fixing on 9% operating expenses and 2020, including share based compensation expenses of 102 8 million decreased by 55%.

604, and $40 5 million from.

$1293 8 million in 2019 sales and marketing expenses, and 2020 were RMB 38 million compared to RMB $48, four and yet in 2019 product development expenses, and 2000, and frankly were $301 4 million compared.

Two 725 and then in.

2019, general and administrative expenses, and 2020 or $301 1 million compared to 524 million and.

2019.

And net loss in 2020, with $221 4 million compared to 500 and.

<unk> one for.

Nearly and in two.

In 2019 non-GAAP.

Loss net loss in 2000, and frankly was $118 6 million.

Basic and diluted net loss per ads in 2019 were both RMB.

And <unk> 76.

As of December 31st 2020, we had cash and cash equivalents restricted cash and short term investments on.

945 familiar and short term bank borrowings of $443 4 million that's right on Youtube is the banking facilities over 400 and.

<unk> quantified Vermillion.

On the fourth quarter over 2020 net cash used in operating activity was $225 9 million.

And that concludes our prepared remarks for today and operator, we are now ready to take questions.

So can you share.

Ladies and gentlemen, and given now begin the question and answer session.

And if not when asking a question. Please state your question in Chinese first and then.

Your question.

For the convenience of favorable and on the quality.

Star followed by one on your telephone keypad.

Ask your question.

Samsung The question you can press the pound all cash day.

Once again, ladies and gentlemen to ask a question. Please press star followed by the number one.

Telephone and keep apps and kinds of people you need.

And even could be announced.

Yes.

Do you have a question comes on the line of Lisa Thompson from Zacks investment.

Good morning, sorry, I can't ask my questions and Chinese tourists.

I would like to know given your change in strategy for this year, what do you expect gross margins to be going forward and also what are your plans for spending and operating expenses.

And.

Yeah.

Let me translate your question first touch.

I wouldn't use the woman.

T K.

Okay hold on.

And I think the told.

And suddenly they got that somewhat touch it type of women and Channelize, the Mega Molly Doug and I said, some English and King high on woman and even though and you say.

Oh, Okay, I see goes out on the street team.

Pardon me.

Uh huh.

Are you asking the operating expenses in the coming year or the medium term or long term.

This year.

But this year this year.

On kit.

Our 2021.

Yes.

And when opinion.

Tool and Linda.

Well it either.

And you may well and they came to us.

John and Joe your early learning and more.

And that <unk> seen from here on what are the things.

And show you why well machines and Uh huh.

However on the soccer for yield.

And machine.

And a woman and about 88, <unk> and day, earning early knee and a twin and she does free teen type vehicles that bad and just soon with us once again.

Well, Linda Chien phone cut out on.

And as a full year with pneumonia Jiangsu you go faster.

<unk>.

No fatal form Washington, D and E.

And that passenger illustrate our buses.

Boston Channel.

So to answer your first crush and we will has improved model codexis for the coming and put a year.

For the year 2021.

The first one is on new properties out of Commission revenue.

And we probably will remain a gross profit margin at a similar level with plenty plenty at 15% to 20% and at the same time, we have our annuity long share sauce and solution offering to our developer base.

Which is.

Which is a SaaS model with a monthly or annually.

Subscription fee income with a gross profit margin at 60% to 80%.

In the and that's yet to come.

So I feel on me and M. N V to you on that yeah, and far field Changzhou E on and yeah, Cleveland and net income.

Thanks, and humane and Uh huh.

Yeah and thought she she's on.

And maybe I'll change on trades and zone.

When you take all that and just Uh huh.

Yeah.

You're right that woman and she also feels on an email and man and a little change either.

And for T. G E G and PG culture and show a woman that shows with tissue places and you go.

Free owners on tax shield Michelle's on field and Guy Ritchie as soon as some day.

The cash outlay Eagle Ford Zone.

Further product development expenses.

And we believe.

First our product development team is pretty much and mature up to now and we believe the increase and percentage in comparison with 2000, <unk> well within our 10% to 20%.

And regarding the sales and marketing expenses.

Because we have established a strong presence on the offline surveys to our agent base and develop her and our off price average team on pretty much mature and we believe that team could be.

We used again and again and the future. So that we believe the percentage in the increased percentage of the increase in the sales and marketing expense as the property and will remain stable debt is the increase would be and minimum.

And do I answer your question Adam.

And it does that and then to around the same.

And you spent in 2020 COVID-19.

And the $640 million.

640 million you mean.

What do you mean by total operating.

Our total operating expense.

Yes, yes.

The other one just to talk.

Going back to you make on that.

And you'll break out hunting when you say on that.

And Cal.

And your own and 10 million.

Let me say on Singles' day on.

And so on Ghana, and he was saying.

And just sort of feels good.

And you wouldn't visit on two women on the line.

And I think D C coming on.

And looking at par.

Hum.

Are you sensing assembly and shop for them.

And.

So you're right.

Okay.

Our co CEO anticipated there would be a minimum increase and all of this overall operating expenses by like 10%.

And lifetime.

And within 10%.

Okay.

And as far as gross margins and expect it to increase from this 8% going forward.

Hello, and thank God G P clearbridge homes basket.

I'd say, it's a whole week since she was on China, just a woman and she comes in.

And for anybody.

Chief among them.

Marty and communicating that and you know women and faster.

And while you do Ya Li.

And I call on and kind of on Monday.

Yeah.

Oh sure, yes, because we have launched the sauces, Lucia and offering to our developing developer base with a much higher gross profit margin.

Set before and that's all I have for the penetration rate and the percentage of these type of revenue increases.

For the years to come and we believe the overall gross profit margin will increase in the following quarter and years new element.

She found and show you.

She is a woman that sounds low teen high oil cut ourselves too.

And that seemed to attach and women that are multi D E C Saturday and our Union Ya Li.

Yeah.

And also to our traditional commission based conditioning revenue we believe.

With the continue.

And debt service to our developer base and our agent base.

And also did it believes the gross profit margin as a percentage will continue to increase in the years to come.

Okay, Great and one last question just for U S folks.

Could you talk just describe the state of the Chinese real estate market now is it.

100% back to normal or are you still recovering some shutdowns.

Okay.

And just to make wasn't that suite on Hana.

And when cats, I mentioned that June quarter, Farmington, Utah since I'm sure you could come out and it's on track.

And Eugene patent by back to normal, which is potentially teaching and Jacques I should hazards and high social and the national reach and shop.

Tour for Nissan.

Okay, All Union, you XI and XI things on the helium.

Free legal impediments on them.

And clients.

And when they return and Saturday night, and two wells on each NHL equally more tweets and cheetah.

Good day you could.

Oh later, Chinese and English 18 telephone leads per day, a simple one.

Yeah.

Finally today and the way he sounded I'm counting on him.

Okay, I'm happy to say that the basically the Chinese whether it's America, it's basically back to normal and we anticipated in the future few years and.

The transaction and volume of the entire country and hopefully remain at Asbury as high as possible like 15, Chilean for new construction property and six children for secondhand property retail property and such.

Quarter, two for 10 day chunks of that trial.

On this and take the Capex how to think.

And good morning.

Uh huh.

And Scott Yeah.

Okay that sounds good and Josh.

Your line is Super high and Michelle.

And she and her time people flow.

Based on when the stock on the even to that.

And.

Net upon we have noticed is.

And the local government and the Chinese government is controlling the selling price of the new construction and property price and also the resale commodity price and so that developers and profit margin is dropping significantly and so that the developers.

Is taking whatever effort to build up their own south team showed that to reduce the.

Cost to reduce the cost from Saudi and the property. So that day. This is.

One of the opportunity that we have seen for our future development in particular, our digitalization for the sales channel.

Yeah.

Okay, great. Thank you and thank you for answering my question.

Youre welcome.

Yeah.

Is there any other questions.

And so we do not have any questions on this woman Becky.

And we are we do not have any further questions on this woman Becky and so okay.

Okay.

We will conclude today's.

Earnings release conference call. Thank you operator.

Thank you, ladies and gentlemen that concludes our conference call for the day. Thank you all for your participation.

This connection.

Thank you.

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Ladies and gentlemen, and thank you for standing by and welcome to <unk>.

Network growth.

Fourth quarter, and full year of 2020 pardon me and so on principle.

At this time, all participants and their interest.

And the only mode. After the management prepared remarks, we will have a question and answer session.

Please note that these.

I'd now like to hand, the conference of what your speaker host today, Mr. Wang financial.

<unk> financial controller of the company and you still had long ago.

Thank you operator.

Hello, everyone and thank you all for joining us on today's call.

Company has announced its fourth quarter and full year 2020 was sold today and earnings releases and all are available on the company's IR web site today, and you will hear from our co CEO, Mr. <unk>, who will start the call with a review of our progress.

So on industry dynamics and details on the deadline and strategies in 2020.

Afterwards, our CFO Mr. Jos on will go over with our financials before we open up on the call for questions.

Our management team will deliver their remarks in Chinese and I will provide the English translation before.

Before we continue I would like to refer you to all to our Safe Harbor statement and our earnings press release, which applies to this call as we will be and making forward looking statements.

Also note that we will discuss and non-GAAP measures today, which are more thoroughly explained and reconciled to the loans and comparable measures reported under the generally accepted accounting principles and our earnings release and filings with the SEC.

And with that and I will now turn the call over to our co CEO and Mr. <unk>. Please go ahead Sir.

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Hello, everyone and welcome to our fourth quarter of 2020 earnings call.

And.

Mr Chairman I'd like to start off the call with a review of the relative market and 2020 during 2020, a real estate developer starting to adopt.

Co marketing and their operation, however, developer face increasing cost pressure and they rely more on sale channel to achieve a higher turnover rate, while our sales channel commissions continued to increase rapidly.

The COVID-19 pandemic and 2020 also further accelerated the digitalization of various industries as more consumers move online and in general the reliance on online sales channels from homebuyers have resulted in the rapid development of the picture.

Cole real estate transaction services.

However, as the real estate industry moves to focus on reducing inventories and the government's implementation on cause serious initiative in 2020, such as the property price caps and three red lines policy developers have affect the additional pressure on their profit margin.

Residential property sales that exceeded 3% in 2020. According to a report from C and so your financial the average commission rate or the retail property has remained below 2% for the past two years.

Result, we believe that the increasing trend and commission rate for new construction property is 90 day long term nor sustainable developers are always and located at first.

On the powder Chang towards the real estate agent service sector and the adoption of <unk>.

Digital marketing solutions, maybe reshape the role that platform price asset sales channel going forward.

We have also observed a series of structural changes and the build us to Asia and service sector do you have asthma and of the Bakers platform has led to a significant change in the allocation of patients as well and I say a decline in the number of larger scale agencies. However, as the competition.

Intensifies small and medium sized agencies or we call. It at am as hepa remained stable, while the quorum and why the quality of their agents has continued to improve to catch up to the competition and some high for example, SMA accounted for over 60% of all age.

And CS and the city and 2020 according to the data from our real estate Digital Research Institute Institute, we believe that the overall allocation of the capable agents. These are becoming increasingly polarized.

A portion of this agent John the leading platforms and the rest John and Ace as part of their startup.

Ventures.

Additionally, we also witness the unprecedented price.

Precedented competition in the sector during the year pro forma free coating P. Peng in new construction properties started offering irrationally high subsidies and free.

<unk> advances of the commissions so that through quickly ran up there as transaction volumes.

And even debt higher subsidies will translate into higher market share players or from other industry were also attracted to the agent service sector, which fuel issues subsidy competition, even more and all.

And our opinion and low frequency and nature or the real estate transaction and a profit seeking nature are built for agents and.

So just a substitute and win.

And we will only generate higher sales performances and the short term and such.

Capex.

And on sustainable means tougher competition and sadly, we believe that long term growth will be driven by dosing.

Weighted service offerings and capable of improving agent service efficiencies.

And with that I would now Mr term, where now for Y and overview of the strategic business and clients that will develop in 2020.

And our stock dilution at the core of our business and reposition our sounds that's upon yeah offer digitalization and Chinas relative service industry.

We have established that depend on our roadmap with our platform on defender and our three and with our three key business segments.

First of all as a platform we are committed to empowering more agencies through our cloud offering.

Should we continue expanding our agency base.

As an independent third party platform, we pull why agencies with a comprehensive set of a standardized and digital and smartphone twos, making us the IP with service providers on computer software and yourself on SMA.

As a result, the number of page and on our platform continued to growth in 2020 for the ninth consecutive EBITDA in a row in the fourth quarter number of active agents on our platform exceeded 283000, representing an increase of 19% from the thank you and all of 2019 more and.

On the <unk>.

Number of active agents, who accessed our SaaS solution increased by 32% year over year to five on drift and 57000.

All the Activations, 85% came from SMA.

Across our business segments, we remain focused on strengthening our cash products to better facilitate transactions through out without getting involved in the subsidy competition.

For agencies and services, we further upgraded our SaaS offering while continuing to strengthen our offline operating.

<unk>.

Launch version five four and all of our total property South App to optimize the way that we establish for your build and maintain a relationship between agents and property buyers.

And the fourth quarter, we accelerated our agent development system, while introducing a series of tools such as online property promotions and virtual property and viewings and online chat rooms to help agents to connect to more.

Our property buyers and manage their client base and more effectively online and as a result in the fourth quarter, our agent development system achieve and agency retention rate of 80, 864%.

And Meanwhile, as we find our SaaS service, we further expanded the coverage of our offline service team to 102040 in the fourth quarter and all.

Also established China's first digital registry for both the agencies, which now covers more than a million agents from 298000 agencies operated by 19000 independent independent companies.

From our property listings and we continue to improve our collaboration with developers.

And the fourth quarter for example, we focus on expanding our collaboration with developers and developer projects, while prioritizing the quality of their real estate projects.

Categorizing the properties through our Pos solutions, and creating a heat map for agencies and developer projects. We further refine our property lease day management process.

As a result during the quarter number on new construction and property projects on our platform increased to 3000 and 417 non representing a year over year increase of 11, 26% and a sequential increase over 19 on 23% for the full year for 2020, we provide services to.

And 5825, new construction and property projects, representing a year over year increase over 24, 15% the number of cities covered by our new construction, probably cause and also expanded by 22% year over year to 204 cities nationwide.

And our perfect and these things and agency days, which.

The two key drivers of our new construction and property sales and business have and maintain their robust growth. However, pressurized by short term impact this closed loop transactions and the envy of our new construction and property was.

And on the 39 billion in the fourth quarter, representing a sequential decrease of 625% and.

And the $107 90 area and a full year over 2020, representing a year over year decrease over 2006, 6%, although our decision not to offer subsidies will have a stroke and impact on our closed loop transaction volume.

We remain confident about our long term growth prospects.

And really we have observed increase and market opportunity for development and source solutions.

And we're strong.

We launched our property cloud solutions.

According to the data from the.

60% of top 50 relative to 12, and China reported increasingly there and investment in the digitalization of their operation through and 2020.

The average annual investment of this is about a third.

Reaching RMB 100, and the area in the period.

Vantage digitalization investments developer, we're highly focused on online marketing solutions will drive this tissue prioritization.

Nonetheless, due to the lack of the technology capacity and capabilities and the high upfront investment costs required to deal with their own systems low.

Those are real.

Developers, usually with island third party saw solution tools to digitalize their business cross sooner and estimate that the market size of our real estate product and China will grow at a CAGR of 49, 3% to RMB 15, non thelion by 2024 day.

And the fourth quarter and response to the developers commands.

Leverage the agency resources data and product expertise that we have accumulated over the not lost and not be years nine years to develop and launch our properties South Pos solution for growth with developers.

This solution enables developers to interact with the platforms and most of the Super Bowl agents and improve the developers transfection efficiency spy fits utilizing their sales cycle first it Leverages property project management and customer profile and analysis services to digitalize the transfer.

And in process.

Chicken offers coupons for south events and and they both agents so share property details across their personal network to digitalize. The customer acquisition process third day provides fisher snack and categorized agencies and manage individual agent performance.

And to digitalize, the sales channel management process for to Digitalize, the cost management policies and also specious analysis and the viewership.

Budget and the conversion rates also marketing campaign, thus, enabling developers to select their own commission rates and while managing their costs effectively and.

Under this new business model, we generally service fees from our SaaS solutions on an annual or monthly basis.

By using our total property South App developers are able to pass on the agents on our platform in their respective cities with debt.

Single tap.

And your finger.

And while our new developer direct sales feature has well received and well.

Welcomed by our platform agencies.

By providing more high quality online coffee and other things and enabling agencies to directly share.

And developers this feature health agencies to improve their customer conversion rates since launching the app, we have fixed up as a pilot.

Partnership programs.

Our properties with SaaS solution with more than 30 of the top developers, including channel banking Gentile Corporation channel overseas, and Lance and investment and limited and the country, causing holding country Garden holding company limited based on the data from our Vela for digital.

Research Institute there come through more than 45000 property projects listed for sale in China. This would represent and men's market potential for our properties out facet solution.

Adopt a monthly retainer modal for it systems and service and a value added service fees.

And for our retail property business, we remain focused on investing and investing and developing our new growth initiatives.

During the first quarter, we established a strategic partnership with a centralized property agency, which enabled us to further.

And hence our closed book retail property transaction capabilities and as a result, our close loop to resell competition and session G and be in the fourth quarter increased by 15, 4% sequentially while on.

Our growth retail property transaction, Jamie and 2020 increased by 15, and 26% year over year to reach RMB.

$73, one theory and.

We also launched a new platform and trade through our partnership with center line on mute and trade, we will leverage our technology Technolo Tech technology capabilities.

Effective management process and the brand brand influence to develop and the initial innovative new and technology enabled franchising system.

And trace top SAS offerings.

Into 28 cities to cover 3940 agents across 455 agencies.

Moreover, we develop our alpha launch effects and service and cost structure by building a network for offline and sections translated and network includes 11 towards fully managed trans.

Transaction Service center in Shanghai dedicated to for why high quality and transaction services to SMA on our platform. In addition, our net were also interfaced with a number of our banks and other financial institutions.

Including the industrial and commercial bank of China, China Construction Bank Industrial Bank Bank of Communications and channel four high bank to integrate their financial services, such as our secure loans mortgage loans and loans and prepayments or other lenders.

And.

During the fourth quarter close loop transaction completed through our <unk>.

Network increased by 335, 9% sequentially and the.

Jim here of this transaction also increased by 45, 9% sequentially.

As for a while.

As the inventories business, we continue to provide effective operation support services.

We live and our effective operations and sales support services to help developers monetize saying monetize those parking spaces debt.

That typically have lower turnover rates.

As such we.

Efficient 40 reduced parking spaces inventories for developers.

And we'll celebrate the digitalization of agency operations, which will improve the ability of agencies to close deals on our platform and that.

Ramp up the revenue and profit growth of our new construction and property transaction business and.

And while we aim to increase our investment in building our people on the service system.

With our properties.

Let's talk solution at its core this system will fulfill developers and <unk> for digital marketing solutions.

And at lower cost and favorable and also helping developers to improve their turnover.

Free cash.

These assets will help to bring more appropriately lifting onto our platform as well as to accelerate the revenue growth of our SaaS services and other value added services.

Lastly, we plan to invest more in our retail property a segment, we will leverage our online sales growth solutions offline coverage established leading retail properties and section and service model enabled and this segment to ramp up its revenue and achieve a breakeven.

Based on this sector expectations. We are currently forecasting our revenue to be free and <unk>.

On the 270 million and RMB $290 million and the first quarter over 2020 one day.

Forecast is based on our current views of the market environment, which are subject to change.

And with that I'll turn the call over to our CFO and Mr. Punjabi on to review the quarter's financial results.

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Okay.

And fearful will now provide a closer look into the fourth quarter financial results before before we begin. Please note that all the numbers are in RMB terms unless otherwise indicated.

And the revenue and the fourth quarter over 2020 decrease of RMB $622, four Neely and the decrease was attributable to the Companys and plan to reallocate resources between the revenue from base Commission, and which had lower profit margins due to the intensified market competition and the revenue from value added services and new business and is in.

And as such are launched.

SaaS solutions for various platform participants with which the company attempted to guidance.

Diversify into future revenue stream and increase profit margin.

And revenue in the fourth quarter over 2020.

But the costs are for revenue in the.

Our fourth quarter on 2020 decreased to RMB.

576 million and debt decrease is.

Attributable to the decrease in the commissions payable to the agents and.

And.

At the same time.

Because the company.

Because of the companies trying to.

Diversified the future income stream.

So that the company provide various task solutions and risk.

Resulting in the reference relevant cost increases.

And the gross margin gross profit in the fourth quarter over 2020 decreased tool.

RMB 51, 8 million gross margin and the fourth quarter over 2020 decreased to eight 3%.

Operating expenses and the first quarter on for 'twenty, and 'twenty, which included share based compensation expenses of RMB 24, 3 million decreased by $85 seven two and the 128 on three.

And 3 million from RMB, $899 7 million and the same period of 2019, which included share based compensation expenses of RMB $745 9 million.

Sales and marketing expenses and the fourth quarter over 2020 increased to RMB $32 2 million from RMB seven.

$17 1 million in the same period 2019 they.

The increase of primarily due to the companies to increase their spending on brand recognition and promoting and marketing activities related to eats and use our solution offered to various platform participant in the fourth quarter on for 2020.

Product development expenses, and the fourth quarter over 2020 were RMB, seven 9 million $17 9 million compared to RMB $506 8 million and the same period of 2000 2019. This decrease was primarily on.

Tribute to go to the decrease of share based compensation expenses and the fourth quarter with 122 on B.

$15 6 million from RMB, $435 1 million and to thank you all for 2019 to a lesser extent. The decrease was also due to the company's decision to shift its approaches.

And the size of a product development team to up to optimizing operating efficiency as well as soft demand and fifth product development structure with a focus on becoming a SaaS solution, which leads to a decrease in your personal related expenses and the period.

General and administrative expenses and the fourth quarter on for 'twenty, and 'twenty were RMB $25, two Amelia and compare it to a RMB 370.

And $5 9 million and the same period of 2019. This decrease was mainly due to the decrease in share based compensation expenses and the fourth quarter over 2020, one $8 7 million from and is 310 8 million same period over 2019 to a lesser extend debt decreased also resulted from the company.

Implementing cost control initiatives in response to the impact of COVID-19.

And net loss in the fourth quarter over 2020 were assigned and $92 8 million and compares with a net loss of a night on the 600 $691 million in the same period.

2019.

And on non-GAAP net loss in the fourth quarter over 2020 was six.

$58 five for me and again.

Basic and diluted net loss net loss per American depository shares Ats and the fourth quarter of 2020 were both.

115.

In comparison on the company's basic and diluted net loss attributable to boats and all the noise share for ABS and the same period.

And the same period of 2019 were both RMB 22.

<unk> represent 25 class a ordinary shares of the company.

And I believe.

I will also briefly review our full year results revenue in 2020 is.

<unk> thousand $451 3 million cost of revenue and 2000 22000.

And 36 on a near me and gross profit in 2020 is 400 and.

$14 5 million gross margin in 2020 is 15, 9%.

Operating expenses, and 2000 and funding including share based compensation expense rates at all for $102 8 million decreased by 55%.

604 and.

45 familiar from.

$1293 8 million in 2019.

Sales and marketing expenses, and 2020 were RMB 38 million compared to RMB $48 4 million in 2019 product development expenses and 2000 and frankly were three.

$301 4 million compared to 725 and then in.

2019, general and administrative expenses, and 2020 or $301 1 million compared to 524 million and 2019.

And net loss in 'twenty, and 'twenty was $221 4 million compared to 510 four.

And in 2000.

In 2019.

Non-GAAP loss.

Loss net loss in 2000, and frankly was $118 6 million.

Basic and diluted net loss for EPS in 2019 were both <unk>.

RMB two seven.

76.

As of December 31st 2020, we had cash and cash equivalents restricted cash and stroke and investments are.

945 from the area and short term bank borrowings of $443 4 million. That's on Youtube is the banking facilities over 400.

<unk> quantified Vermillion force.

Fourth quarter over 2020 net cash used in operating activity was $225 9 million.

And that concludes our prepared remarks for today and operator, we are now ready to take questions.

So can you share.

And we will now begin the question and answer session and.

All right and asking a question. Please state your question in Chinese first and then.

Can you please repeat your question in.

And while the convenience and safety one on the volume it is.

Followed by one on your telephone.

Ask the question the Samsung and the question you can press the pound on cash team once again, ladies and gentlemen to ask a question. Please press star followed by the number one.

Telephone and keep apps and kind of reported NIM to be announced.

Yes.

Do you have a question coming from the line off and Lisa Thompson from Zacks investment research.

Good morning, sorry, I can't ask my questions and Chinese tourists.

I would like to know given your change in strategy for this year, what do you expect.

<unk> margins to be going forward and also what are your plans for spending and operating expenses.

Okay.

Let me translate your question first.

So I wouldn't just a woman.

Okay.

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Tell me if I suddenly they got that somewhat.

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Pardon me.

Are you on.

And the operating expenses in the coming year or the medium term or long term.

This year.

But this year.

And on kit.

2021.

Yes.

And <unk>.

Tool and Linda.

All of these children.

Now you may well machine debt.

John and Joe Your early learning and <unk> teams on you so what else and show you why well machines and Uh huh.

However, some of those types of Oems.

And the machine and fun.

And a woman and about 88 <unk> a day early early and she does free teen type of airplanes that back and just see what our actual TTM.

Well, Linda <unk> phone zone.

The full year with pneumonia and Jiangsu <unk> faster.

At a full motion day Modi.

And we got passenger newest Boston and channel.

So to answer your first crush and we.

We'll have.

It has improved model coexists for the coming year.

For the year 2021.

The first one is on new properties out of Commission revenue.

And we probably will remain a gross profit margin at a similar level with plenty plenty at 15% to 20% and at the same time, we have newly launching sauce and solution offering to our developer base.

Which is a.

Which is a SaaS model with a monthly or annually.

Subscription fee income with the gross profit margin at 60% to 80%.

In the and that's yet to come.

So I feel on me and I'm, a man with you on that yeah, and far field change I E.

And yeah, Cleveland <unk> net income.

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On the Eagle Ford Zone.

Further product development expenses, we believe because our product development team is pretty much and mature up to now and we believe the increase and percentage in comparison with two <unk> well within <unk>.

And 10% to 20% and regarding the sales and marketing expenses.

Because we have established a strong presence on the offline surveys to our agent base and a developer and our offline service team on pretty much mature and we believe that team could be.

And we used again and again and the future. So that we believe the percentage in the and increase our percentage of S and increasing the sales and marketing expenses and property will remain stable debt is there.

The increase would be minimal.

And do I answer your question Adam.

Oh, it does that and then to around the same.

And you spent in 2020 COVID-19.

The.

$640 million.

$640 million you mean.

What do you mean by total operating.

Our total operating expense.

Yes, yes.

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Toyota.

Okay.

Our co CEO anticipated there would be a minimum increase of this overall operating expenses by like 10% and.

And the light.

And 10%.

Okay.

And as far as gross margins and expect it to increase from this 8% going forward.

Because it wouldn't make a GPU clearbridge homes passed.

And so hopefully since she was on China, just a woman.

Subsides and done by summer.

Shoot.

Marty and John you know women and fossil fuel and <unk>.

And I call on and kind of on Monday.

Oh sure, yes, because we have launched.

It starts with looser and offering to our develop developer base with a much higher gross profit margin.

<unk> said before and that's all I have for the penetration rate and the percentage of these type of revenue increases.

For the years to come and we believe the overall gross profit margin will increase in the following quarter and years new element.

Chin balance and show you.

She is a woman that sounds low teen high oil cut ourselves.

And I take the simple caching and Linda.

Multi D E C Italian Armenia and Ya Li.

Yes.

And also to our traditional commission based conditioning revenue we believe.

And with the.

Continue.

So there's two hour developer base and our agent base. We also believe the gross profit margin as a percentage.

Continuing to increase in the years to come.

Okay, Great and one last question just for Us U S folks could.

Could you talk just described and the state of the Chinese real estate market now is it.

100% back to normal or are you still recovering some shutdowns.

Okay.

And just the tone wasn't that suite on Hana.

Operating cash I mentioned that June quarter, fundings and Shithouse since I'm sure you could come out and it's on track.

Eugene and buy back to normal, which is potentially teaching and Chuck I should hazards and hydro solar and non official each and shop.

Sure if anytime.

Okay, All Union, you Chi and achievements on the Hill.

Free legal and patent and patent.

And club member.

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Good day you got.

Oh later tell you pretty much reaching 10 pound weight per day, a simple land E.

And some actual final each day and new language on Sunday was down and.

On time.

Okay, and I'm happy to say that basically the Chinese whether it's America, it's basically back to normal and we anticipated in the future few years and.

On the transaction and volume of the entire country and hopefully we made it does vary as high as possible like <unk>, Chile and for new construction property and the six children and for second hand property retail property.

On quarter Tuneful Sundance channel should that Charles.

And they tend to take the cash.

And how to think.

Thank God and Shanghai.

Yeah.

And Scott Yes.

Okay that sounds good and Jos.

Eli and it shows a high and Michelle.

And she and time people flow.

And so on the thought on that.

And to that strategy.

And and.

Net upon we have noticed is.

And the local GAAP and then the Chinese government is controlling the selling price of the new construction and property price and also the at least I'll cover the price and so that.

Developers and profit margin is dropping significantly and so that the developers.

And.

This taking whatever effort to build out their own south team showed that to reduce the.

Cost to reduce the costs from selling the property. So that day. This is.

One of the opportunity that we have seen for our future development in particular, our digitalization for the sales channel.

That's great. Thank you and thank you for answering my question.

Yeah Youre welcome.

Yeah.

Is there any other questions.

So we do not have any questions on this woman Becky.

Yeah.

And we do not have any further questions on this woman that piece okay.

Okay.

We'll conclude today's.

Earnings release conference call. Thank you operator.

Thank you, ladies and gentlemen that continue to check on his call for today. Thank you all for your participation you may disconnect now.

Q4 2020 Fangdd Network Group Ltd Earnings Call

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