It has not been a banner year for China's real estate market,
with home prices and sales activity declining in many areas of
The folks atLeju Holdings (
) know all about it. The company provides real estate e-commerce,
advertising and listing service via its website as well as
through mobile apps.
Its stock debuted on the NYSE in mid-April, right in the
middle of a slowdown in the Chinese real estate market.
Leju, a spin-off of the larger real estate service firmE-House
(China) Holdings (
), was forced to cut its initial public offering to 10 million
shares from 17.7 million and priced at the low end of its
proposed $10 to $12 range.
After Leju reported robust first-quarter results on May 20,
the company showed that even a challenging real estate market can
have its upside.
In fact, Leju might have been helped by the slowdown in
China's real estate market, says Chief Financial Officer Min
"In a slightly challenging year for developers, there is
actually greater demand and need for our (service) to help them
sell units," Chen told IBD in a phone interview from China.
Leju's Q1 revenue nearly doubled from the prior year to $78.5
million, thanks in large part to a 238% surge in e-commerce
revenue -- much of it related to Leju's discount coupons sold to
Net income grew to $7.7 million vs. a net loss of $4.3 million
a year earlier.
Following Leju's Q1 report, the company's shares shot up 26%
over the next three sessions, closing at 12.69 on May 22. The
stock set a record high of 14.20 on July 24 and still trades near
The company eyes continued growth in its e-commerce business
in coming months.
"We expect this year's coupon sales to be higher despite the
softer market," Chen said.
She says first-quarter coupon sales more than doubled from a
year earlier, when the property market was hotter.
Since the coupon model in China is still relatively new, Leju
expects penetration rates to go up off a small base.
Of all new residential property units sold in China last year,
only 3% were sold using discount coupons. Leju shares the tiny
market with chief rivalSouFun (
), a Chinese real estate Web firm with a slightly bigger market
"We're seeing more developers receptive to this new model,
which means our market share will continue to grow," Chen
"Feedback from developers continues to suggest Leju's
e-commerce services are gaining popularity," analyst Jinsong Du
of Credit Suisse noted in a recent report.
Leju, which means "happy living," works with dozens of major
developers in China and a host of local ones in smaller
In return for selling coupons to buyers, it provides
developers marketing and promotion service and helps buyers
Sales of discount coupons made up more than 60% of Leju's
revenue in the first quarter. An additional 30% came from online
advertising. That business includes placing banner ads for
developers on Leju's website and on the sites of partnersSina (
), China's leading Internet media company; andBaidu (
), the largest Chinese-language search engine.
Leju gets paid for running Sina's and Baidu's many real estate
and home furnishings sites. It also receives fees from brokers
who list homes on the sites.
In an effort to expand into mobile apps, Leju recently formed
ties with two popular social media mobile networks: Sina's
micro-blogging platform Weibo andTencent 's (TCEHY) Weixin (known
as WeChat outside China).
"We're focused on moving from the PC side to the mobile side,"
Chen said, noting that several new mobile products were launched
Meanwhile, the company's listing business for existing homes
made up only 5.5% of revenue in the first quarter. That business
has been a challenge in a country where new housing is
Du considers China's secondary housing market "still
Leju's existing-home listings are focused mostly in Beijing,
and the city's secondary listing market has been "sluggish,"
according to a report from JPMorgan analysts. Even so, Leju
recently signed existing-home listing agreements with more than
100 brokerages in 17 cities in China.
All Grown Up
Leju got started as an online business under E-House in
"It reached a stage where E-House thought it could function as
a stand-alone business," Chen said of the IPO.
Shanghai-based E-House owns 75.5% of Leju's shares and
considers it a subsidiary. Tencent, which is a big player in
online games and social networks in China, owns 15%. Most of the
remaining shares are traded publicly.
E-House consolidates Leju's revenue, profit and expenses in
its financial statements. However, E-House doesn't include 25% of
Leju's profit, omitting the stake in Leju it doesn't own. E-House
reports all of Leju's revenue as "revenue from real estate online
services," which in the first quarter made up 48% of E-House's
Leju and E-House use separate management teams. Prior to
joining Leju in 2008, Leju's CEO, Yinyu He, was publisher and
chief editor of Information Week China and previously worked as a
print and broadcast journalist in China.
Chen, who joined Leju in March, previously was a managing
director with Bank of America Merrill Lynch in Hong Kong.
Leju expects its 2014 revenue to rise 49% to 55% from last
year to a range of $500 million to $520 million. Analysts
estimate Leju will earn 74 cents per share in its first year as a