Fangdd Network Group Ltd. Q3 FY2020 earnings call

Market Trends

• New construction, resale property, and transaction service markets maintained growth. Total property transaction value in China projected to grow at CAGR of 9.3% to RMB 27.6 trillion by 2023. Real estate agents' role in transactions growing. Intense subsidy competition among transaction platforms.

Strategic Optimizations

• First: No subsidies, focus on SaaS to empower SMEs, improve closed-loop transactions. Active agents on platform exceeded 276,000 in Q3 2020, up 21.98% y-o-y; September had 185,000 active agents, a monthly high.
• Second: Maximize exclusive platform transactions via SaaS and offline services, partnership with Centaline Group to develop technology-enabled franchising system.
• Third: Strengthen offline resale service capabilities, expand transaction service centers, expand property listing library, expand parking space pass and renovation services. Built 10 self-owned transaction service centers and 41 offline stores in Q3, forged partnerships with 25 top-tier developers, expanded parking space pass to 7 cities with 23,000 listed parking spaces.

In the third quarter of 2020, revenue was RMB 819.1 million, a decrease of 13.6% year-over-year but an increase of 11% quarter-over-quarter. Cost of revenue was RMB 626.8 million, a decrease of 16.3% year-over-year but an increase of 1.6% quarter-over-quarter. Gross profit was RMB 192.3 million, a decrease of 3.3% year-over-year but an increase of 58.9% quarter-over-quarter. Gross margin expanded to 23.5% from 21% in the same period of 2019. Operating expenses were RMB 168.8 million, an increase of 38.4% year-over-year. Net income was RMB 21.9 million, up from RMB 18.3 million in the same period of 2019, and non-GAAP net income was RMB 48 million, down from RMB 80.3 million in the same period of 2019.

Expect Q4 2020 revenue between RMB 600 million and RMB 700 million. Short-term impact on primary distribution business due to no subsidies, but confident in expanding agent base and property listings. Plan to invest more in empowering preferred agent alliance via Centaline partnership, expecting off-line costs to increase in Q4.

Intense subsidy competition among real estate transaction platforms, which pushes up developers' commission costs and forces agencies to rely on quantity of agents. Short-term impact on closed-loop transactions due to subsidy competition.

Q: How long will the impact on primary distribution business last and details of off-line investments in Q4 and margin impact?

A: Competition on subsidy expected to last 1-2 quarters. Investment in empowering outstanding agencies via cooperation with Centaline, expecting off-line costs to increase but no significant immediate margin improvement.