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Edited Transcript of LEJU.N earnings conference call or presentation 20-Aug-20 11:00am GMT

Half Year 2020 Leju Holdings Ltd Earnings Call

Shanghai Aug 26, 2020 (Thomson StreetEvents) -- Edited Transcript of Leju Holdings Ltd earnings conference call or presentation Thursday, August 20, 2020 at 11:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Li-Lan Cheng

Leju Holdings Limited - Acting CFO

* Michelle Yuan

Leju Holdings Limited - Deputy CFO

* Yinyu He

Leju Holdings Limited - CEO

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Conference Call Participants

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* Marco Andres Rodriguez

Stonegate Capital Markets, Inc., Research Division - Director of Research & Senior Research Analyst

* Xiaomeng Zhuang

BofA Merrill Lynch, Research Division - Associate

* Eric Wen

Blue Lotus

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Presentation

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Operator [1]

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Hello, and thank you for standing by for Leju's first Half 2020 Earnings conference call. (Operator Instructions) Please note that today's conference call is being recorded. (Operator Instructions)

I would now like to turn the meeting over to your host for today's conference, Ms. Michelle Yuan, Leju's Deputy CFO.

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Michelle Yuan, Leju Holdings Limited - Deputy CFO [2]

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Hello, everyone, and welcome to Leju's First Half 2020 Earnings Conference Call. Today, we will update you regarding our financial results for the first half year ended June 30, 2020. And if you would like a copy of the earnings press release, or would like to sign up for our email distribution list, please go to our IR website at ir.leju.com.

Leading the call today is Mr. Geoffrey He, our CEO, who will review operational highlights for the first half of 2020. Mr. Li-Lan Cheng, our acting CFO, will then discuss the financial results in more detail. We will then open the call to questions.

Before we continue, please allow me to read you Leju safe harbor statement. Some of the statements during this conference call are forward-looking statements made under safe harbor provisions of Section 21E of the Securities Exchange Act of 1934 as amended. Forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from our current expectations. Potential risks and uncertainties include, but are not limited to those outlined in our public filings with the SEC.

You are encouraged to review the forward-looking statements section of our annual report filed with the SEC for additional information concerning factors that could cause those differences.

Leju does not undertake any obligation to publicly update any forward-looking statements whether as a result of new information, future events or otherwise, except as required by applicable law.

Our earnings press release and this call include discussions of unaudited GAAP financial information as well as some unaudited non-GAAP financial measures. Our press release contains a reconciliation of the unaudited non-GAAP measures to the unaudited most directly comparable GAAP measures. Please note that unless otherwise stated, all figures mentioned during this conference call are in U.S. dollars.

I will now turn the call over to Leju's CEO, Geoffrey He. Please go ahead.

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Yinyu He, Leju Holdings Limited - CEO [3]

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Thanks, everyone, for joining us on today's call. Against the background of the COVID-19 pandemic, we delivered solid results for the first half of 2020 with steady revenue and increased profit. GTV from our services reached RMB 181.5 billion in the first half of 2020. Due to the impact of the pandemic, we have seen strong interest in our innovative offerings as real estate developers increasingly value and utilize online marketing services amidst the challenging market environment.

Since the Chinese New Year, we have accelerated the digitalization of our e-commerce business with the launch of 5 highly effective online marketing campaigns, including online apartment sales, live broadcasting and the VR house tour, online property sales platform, spring online real estate transaction fair and the Suning and Leju's "618" online promotion, leveraging our online property sales platform, which provides a comprehensive online property transaction ecosystem, including property subscription, sales launches and the electronic signings.

In addition, we recently announced an exclusive strategic cooperation with Suning, which will further strengthen the development of ours -- and online closed up transaction model through the combination of vertical platforms and professional e-commerce platforms. We also recently announced a strategic cooperation between E-House, Alibaba and Leju to build an online real estate marketing and transactional platform with the goal of enhancing the digital and the intellectual capabilities of the real estate service industry.

Leju will become the service provider for digital marketing and operation on the platform, which will greatly enhance our core value and expand our business scale in the future.

Looking forward to the second half of this year, through our in-depth cooperation with Alibaba and Suning, we will further improve our platform, continuously expand our market reach and product innovation and provide leading online integrated marketing solutions for the property industry. We will also further optimize our operations and management and improve our operational efficiency to ensure the healthy and sustainable development of the company.

Now I will turn the call over to our acting CFO, Mr. Li-Lan Cheng, who will review our financial highlights for the first half of this year.

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Li-Lan Cheng, Leju Holdings Limited - Acting CFO [4]

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Thank you, Geoffrey. Good morning, and good evening, everyone. For the first half of 2020, we recorded total revenue of $279.7 million, relatively flat compared to the same period last year. Total revenues [demonstrated] (corrected by the company after the call) in RMB were RMB 1.973 billion, an increase of 4% from the same period last year. With business activities largely back to normal following the pandemic, our total revenues recovered quickly in the second quarter. Our e-commerce revenue slightly decreased by 2% to $205.4 million for the first half of 2020, as a result of devaluation of RMB relative to U.S. dollars.

E-commerce revenues [demonstrated] (corrected by the company after the call) in RMB were RMB 1.449 billion, or roughly RMB 1.45 billion, an increase of 2% from the same period last year, primarily due to an increase in the number of discount coupons redeemed, partially offset by a decrease in the average price per discount coupon redeemed. E-commerce service revenue contributed 73.4% of our total revenues for the first half of this year.

Our online advertising revenues contributed 26.4% of our total revenues and it increased by 5% to $73.9 million for the first half 2020 due to an increase in property developers' demand for online advertising, while our listing revenues decreased by 60% to $0.3 million as a result of a decrease in demand for secondary real estate brokers for the first half of 2020.

Income from operations was $1.2 million for the first half of 2020 compared to a loss from operations of $7.1 million for the same period last year. Net income attributable to Leju shareholders was $1.5 million for the first half of this year compared to a net loss attributable to Leju shareholders of $4.1 million for the same period of 2019.

Non-GAAP income from operations was $8.3 million for the first half of this year compared to $0.4 million for the same period of last year. Non-GAAP net income attributable to Leju shareholders was $7.2 million for the first half of 2020, an increase of 306% from the same period last year.

As of June 30, 2020, our cash and cash equivalents balance was $258.2 million. Our net cash flows generated from operating activities for the first half of this year was $101.1 million, mainly attributable to non-GAAP net income of $7.6 million, an increase in advance from customers of $70.7 million, an increase in amounts due to related parties of $49.7 million and a decrease in customer deposits of $31.1 million, partially offset by an increase in accounts receivable and contract assets of $47.0 million and a decrease in other payables of $23.7 million.

Looking ahead, we estimate that our second half of 2020 total revenues will be approximately between $480 million and $500 million, which represents an increase of approximately 16% to 21% from the same period last year. Please note that this forecast reflects our current and preliminary view, which is subject to change.

This concludes our prepared remarks. We are now ready to take your questions. Operator, please go ahead.

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Questions and Answers

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Operator [1]

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(Operator Instructions) We have our first question from the line of Eric from Blue Lotus.

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Eric Wen, Blue Lotus [2]

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First, congratulations on the good results. I have 2 questions. First one is, can -- He-zong and Li-Lan, can you elaborate on how you plan to convert T-mall's 2C traffic and utilize our new home selling site to convert them into home purchasing traffic?

My second question is, I noticed that your advances from customers went up three folds, while customer deposits actually declined a little bit compared to half a year ago. Can you explain what is the linkage between these 2 accounts? And how do you expect to recognize this advance from customers into revenues in the second half?

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Yinyu He, Leju Holdings Limited - CEO [3]

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Okay. I'll answer the first question. Because we are still in a very initial stage to cooperate with Alibaba, and we are still evaluating the traffic from T-mall and Taobao and Alibaba ecosystem. Apparently, they have very big traffic in terms of the e-commerce. However, how many buyers on that platforms are interested in home buyers and also how many users actually can be effectively converted to be our house purchasers. We are in the stage, we are in close cooperation with Alibaba colleagues. And it is actually is our goal to effectively utilize their traffic into our online house platform.

So it is quite early to answer your question that how many people will come from their platforms. But from our initial discussion, I think, this is quite an effective way because they still have a very strong traffic. And another advantage is that they actually precisely know the habits of their users. So I think if we combine their technologies and Leju's technologies, we are quite soon to figure out effective way to utilize the traffic. So that's the first answer.

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Li-Lan Cheng, Leju Holdings Limited - Acting CFO [4]

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Yes. I'll answer the second question. The advance from customers and customer deposits are actually 2 very different things. Maybe the labeling is not ideal, so it causes the confusion here. Advance from customers, here, the customer are the individual homebuyers and advance from customers is the cash we receive when we sell the coupon, but before we recognize our revenue. So it's kind of a deferred revenue in nature.

Customer deposits, here, the customer, the word customer means developers. So it's a two total different things. Customer deposits is the amount of money -- the money we pay to developers to secure certain e-commerce projects. And it's refundable, usually refunded within a couple of months. So it's just the coincidence that we use the word customer in both places, so that maybe or what's causing the confusion. And the movements of these 2 items are completely unrelated. So it's just a coincidence here.

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Operator [5]

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We have our next question from the line of Marco Rodriguez from Stonegate Capital Market.

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Marco Andres Rodriguez, Stonegate Capital Markets, Inc., Research Division - Director of Research & Senior Research Analyst [6]

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I was wondering if you could talk a little bit more about the strategic cooperation with Suning. What are the possible kind of revenue impact if you can help frame that?

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Yinyu He, Leju Holdings Limited - CEO [7]

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Okay. I think our cooperation with Suning is the first step that Leju cooperate with an expertise in e-commerce platform. As you know, Suning is an e-commerce platform for home appliances, because they are running based on stores. And Leju's platform actually is based on our information platform, plus the trading tools on that. So it is our first step to cooperate with an expertise e-commerce platform.

The first step, as you see is that we exclusively run the real estate channel on the Suning platform. On the other hand, we also opened a flagship store on the Suning platform. This enables us to do the transactions on the e-commerce platform. Through promotions like our 618 activities, we accumulated a lot of expertise to how to provide marketing services to our developers. So far, I think because we just finished our second promotion with Suning. We talk about 818 activities. And actually, the results are quite good. So we are trying different methods to utilize the Suning platform to enrich our varieties of services to our developers. Just that's the first one.

On the marketing side. So we have a lot of -- we have more choices, options of marketing activities to the developers. The second is that we are actually combining our users to their users. It's kind of a value-added chain. Because on Leju's platform, we have very precise users, our homebuyers, which actually are very active precise buyers or potential buyers of their home appliances. So we are trying to put a lot value-added together to enrich the experience of our users. That's on the second part.

The third part is that we are also talking about more options to provide value-added services to the users, including financial services, which Suning finance will provide. So this will also provide us another way to enrich our capabilities to serve the developers and the users.

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Marco Andres Rodriguez, Stonegate Capital Markets, Inc., Research Division - Director of Research & Senior Research Analyst [8]

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Got it. Understand there. Then switching gears, if you could just talk a little bit more in regard to the Alibaba transaction that you guys just recently announced. If maybe you can talk a little bit about how the transaction came about. And if you can maybe talk about the timing of the transaction. Just kind of wondering why it happened now versus maybe in the past, given the fact that you guys all know each other.

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Yinyu He, Leju Holdings Limited - CEO [9]

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Okay. Leju is actually a part of the deal. But actually, just the main deal is between the E-House and Alibaba. I think why it happened? Maybe part of it is because of the pandemic, most developers actually begin to value the online marketing and the sales capabilities. And it is quite a good point that the online platforms, they shifted their attention to such a big market, which were RMB 100 billion or more. So that's I think the time point that Alibaba is very interesting. And actually, E-house and plus Leju, we actually are very strong. Actually, we have a quite strong presence on the market. And that's as we think why the deal happened today.

On the other hand, is that we actually also opened the door for Leju. When you see our cooperation with Suning is our first step. It's our first-step cooperation with the e-commerce platform, and we accumulated experience, so this will also help us in our further cooperation with Alibaba because they are also an e-commerce platforms. So this is quite helpful for us. And this also opened a window to attract e-commerce users or the traffic.

Before, actually, our users are mainly attracted from the information-based users by potential buyers and the source of the e-commerce platforms actually the another important potential buyers for us. So that's the second one.

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Li-Lan Cheng, Leju Holdings Limited - Acting CFO [10]

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If I may just add a little bit to what Geoffrey just said. In fact, --the Chairman, Mr. Zhou Xin and the senior management, we've known Alibaba people for a long time. And there have been on and off discussions about Alibaba's intention, their thoughts about whether and when and how to get into the real estate industry, how to bring that onto the Alibaba's platform and how we could work together.

So I think this dialogue has been happening for a while. And I think in Alibaba's mind, E-House and Leju plus, we would always be their preferred partner. I think sort of to echo what Geoffrey said, I think the fact that happened now behind this is, I think Alibaba finally made up its mind that you had to get into real estate to make the overall ecosystem complete. And the COVID-19 pandemic, may actually be one of the factors because when all the offline showrooms were shut down, Leju was probably the only player, marketing players still operating that may be one thing. --The other is that although we didn't explicitly discuss this, but I think the success of Beike and its IPO may have been another impetus. Just so Alibaba people could see how big this platform could be when you combine online and offline platforms to facilitate a real estate transaction. So I think the dialogue lasted quite long, but when it started to speed up and the project was actually quite quick.

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Marco Andres Rodriguez, Stonegate Capital Markets, Inc., Research Division - Director of Research & Senior Research Analyst [11]

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Understood. Very helpful. And last quick question from me. In your prepared remarks, you talked about optimizing operations and improving operational efficiency. Are these any sort of cost-cutting moves that you're making? If you can just kind of expand on that and maybe quantify if you can, what that means?

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Yinyu He, Leju Holdings Limited - CEO [12]

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Actually improve the efficiency of our operations doesn't mean that we cut hands because our e-commerce platforms includes both online services and offline service. Previously, actually, when developers, they showed little interest on the online services. So they actually ask more offline services from us, which means more cost to us. And from this year, because we already show the efficiency of the online services, so this will help us actually improve our cost structure. That's why I say we will try to further increase our operational efficiency, mainly because we still think there's a quite big room.

First is educate the market that when you use online services, you can be more efficient than when you're choosing the offline service that's the first one. The second one is that from our platform structure, we will actually invest more resources to the online services rather than put other offline services, which will also help us to improve the cost structure. So that's what I mean in the prepared remarks.

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Operator [13]

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We have our next question from the line of Miranda Xiaomeng Zhuang from Bank of America.

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Xiaomeng Zhuang, BofA Merrill Lynch, Research Division - Associate [14]

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I have a couple of questions. First of all, I want to ask a question to follow-up on the cooperation with Alibaba, which includes several, I note, small questions. First of all is, management just highlighted a few areas that you're cooperating with Suning. I'm wondering if that kind of cooperation that you mentioned more value-added services and running the housing channels, et cetera. Those cooperation that will be also implemented in our cooperation with Alibaba? And what else, what kind of cooperation areas that you think may be interesting for your cooperation with Alibaba?

And then second question is I think you mentioned a very good point about converting the traffic from Alibaba, which is the general e-commerce platform to exactly let those users that are interesting in housing transactions, and that will be an area that you need to work on. So I'm wondering that what's the depth of the cooperation that you're working with Alibaba. Are they going to like cooperation in more in-depth level, for example, the sharing of the user data, integration of the user data, so that you can better use data mining to find out those users that are interested in your platform and also that are available in Alibaba. Then I will ask a question later. Another question later.

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Yinyu He, Leju Holdings Limited - CEO [15]

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Thank you for your question. For the first question, actually, as we announced that we will cooperate with Alibaba to building 2 platforms. One is the digital marketing platforms. And the second one is the online transaction platforms. So that's the 2 platforms. One is the marketing platforms, which actually now we are cooperating with Suning is mainly on the marketing side. So we actually -- you can see we sell a little, very small amount coupons on that to attract some potential buyers. And also, we compensate some money in cash or Suning cards, so that when they finish the purchase. So it's on the marketing side, we will continue to either expand the scope of cooperation with Suning and we also will copy these models to the Alibaba.

And as Alibaba has ecosystem is stronger than the Suning. So this will enable us to play more marketing activities on the Alibaba side. And one thing is for sure is that we are going to jointly do the November 11 marketing activities together. That's the first one.

For the second one is that we are going to do online transaction platforms, which relies on the payment solutions and even the financial services. So this is the capability of Alibaba, and I think we have strong capabilities of we know when the developers, how to sell their houses. And Alibaba has the capabilities to find out the financial solutions, payment solutions for them. So we are going to the second platform is that online transaction platform.

And the third one is that when we're building up the marketing platforms and the transaction platforms, we will also pay some attention to the post home purchase market, which means when the people buy the houses on online and how many value-added services or even value-added e-commerce services we can provide to those users. So 3 parts that we are considering now with Alibaba.

Currently, we are in very close discussion with them to realize these functions, and we are trying to building up competitively a mature platforms in 1 or 2 years. And as the other one is that one advantage for Alibaba is that he actually owns 800 million consumers on their platforms. So data mining is, for sure, in their capabilities. However, we know the characteristics of the potential buyers. So we need to combine their traffic with our capabilities to find out how many people in the coming 6 months or 3 months, they have the intention to buy houses, and we can do effective marketing services to them and then convert them into the trading stage.

So that's the important topic between our 2 companies now. I think this is also a very effective way. This helps Leju, to improve our capabilities to reach bigger audience. And for Alibaba, they have a new way to realize the value of their current users to provide more added services.

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Xiaomeng Zhuang, BofA Merrill Lynch, Research Division - Associate [16]

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And I want to ask my second question. We also noticed that now you're being consolidated by E-House Group because it increases the holding in the company. So I'm wondering that what kind of initiatives or cooperation that you will work with E-House since now you're a consolidated entity, especially because --E-House's strength is in the offline activities that they have offline sales teams, while your strength is in the online market. So can you elaborate more on the potential there?

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Yinyu He, Leju Holdings Limited - CEO [17]

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During the discussion with Alibaba, actually, XiaoYaoZi, their Chairman, asks us a question. The real estate actually is an online plus offline circle. Only online or only off-line currently is apparently not an ideal model. So he asked the questions, why E-House and Leju can't cooperate first? Because Leju is online and E-House is offline. So I think this is also a good question for us. In the past 10 years, actually, we have some small cooperations, but not on a big scale on the corporate level, we are not doing some close cooperations.

So I think this is a good start for us to think about our model, both -- combining both online and offline services. So that's the initiative that E-House become the controlling shareholder of Leju. This also enables us to think about that. Previously, actually, we are 2 independent companies. So a lot of services are providing to developers separately and our financial controllers also asked us is that it's kind of internal trading, right?

But now become -- now E-House becoming our controlling holders, I think this problem is solved. So this also accelerate our solutions. We can provide both online, offline combined solutions for developers. I think it's good for us.

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Xiaomeng Zhuang, BofA Merrill Lynch, Research Division - Associate [18]

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So my last question is about our guidance. So we mentioned that we expect a 16% to 21% growth in the second half this year. I'm wondering which is improved meaningfully from the first half level. So I'm wondering that in your business outlook, how much of that is contributed by recovery of the housing market, overall market? And then how much of that will be contributed by potential contribution from these cooperation with Suning and Alibaba, and then also how much of that will be contributed by improvement of your own traffic conversion rate means that after you're implementing the VR online e-commerce tours that can help improve fuel traffic to coupon or to transaction conversion rates. I'm just wondering how much of that is improved.

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Yinyu He, Leju Holdings Limited - CEO [19]

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Okay. First, our current forecast is based on our current situation. And we put very little percentage to add it to the forecast from the cooperation with Alibaba because now we are still in initial discussions. So we currently don't have a very exact forecast. How many value-adds will come from the cooperation. From the cautious level, we cannot put that into the forecast.

And as you see that because -- our first half, you can see even our e-commerce side revenue is flat but when you break into 2 quarters, you can see the first quarter, actually, the e-commerce revenue is down because of the pandemic. And we actually recorded a quite high growth in the second quarter. So we just think that the third quarter and the fourth quarter, first, the market will keep stable. And from our previous experience, the second half is also almost twice about the first half. So it's our forecast based on these previous experience and the current market situation and our forecast about the market movement.

That's we think that our forecast are between the 16% to 21% growth in the second half. We count a little now to the forecast about the cooperation with Alibaba. But optimizely, we think if we can generate the results quickly from the corporation. I think we are going to report a higher growth from that.

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Xiaomeng Zhuang, BofA Merrill Lynch, Research Division - Associate [20]

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And how about the other part of question, like any quantitative color? Or how much of your conversion rates are improved due to the use of the VR showrooms or online showrooms?

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Yinyu He, Leju Holdings Limited - CEO [21]

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Because our e-commerce current conversion rate is about 80%, right? if I remember not wrong. And because our sales of the coupons is online, but I think nobody will buy the coupons online and don't go to the showrooms. So it's a combined closer look of the sales process. So the conversion rate will keep stable around 80%.

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Operator [22]

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We have our next question from the line of Eric Wen from Blue Lotus.

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Eric Wen, Blue Lotus [23]

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I have 2 follow-up questions. First is a housekeeping one. Can you give a breakdown or at least describe the trend of coupons purchased and redeemed in the first quarter and second quarter? And what volume we're going to spread in the third quarter and the fourth quarter? And I have a follow-up question.

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Li-Lan Cheng, Leju Holdings Limited - Acting CFO [24]

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Well, since we're doing we're doing only first half financial results, we're not going to release quarterly numbers. If we release one set of numbers we would be obligated to dispose all others. But in general, like Geoffrey said earlier and answered an earlier question, first quarter the operation was relatively poor because of the pandemic and a lot of the recovery and rebound happened in the second quarter.

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Yinyu He, Leju Holdings Limited - CEO [25]

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Yes. I can add something is that our second quarter is quite strong, the growth.

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Eric Wen, Blue Lotus [26]

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Okay. My second question is a general question is that your competitor has published an opinion, saying that the circulation rate of China's residential real estate is about 2%. The number of houses changing hands compared to the overall house available in China. The developed country is about 4% to 6%. What is our view regarding this circulation ratio? And what do you think the potential for how the transaction will be in China in the foreseeable future?

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Yinyu He, Leju Holdings Limited - CEO [27]

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Sorry, I didn't get your question about the circulation rate of houses.

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Eric Wen, Blue Lotus [28]

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Houses. Yes, it basically is the number of total houses in China as a denominator and the number of secondhand house transactions in the numerator. So 2%, and the developed country is about 4% to 6%. So there's about double the size potential.

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Yinyu He, Leju Holdings Limited - CEO [29]

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You mean the commission rate, is right?

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Eric Wen, Blue Lotus [30]

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No, it's a circulation rate.

(foreign language)

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Yinyu He, Leju Holdings Limited - CEO [31]

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(foreign language)

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Eric Wen, Blue Lotus [32]

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(foreign language)

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Yinyu He, Leju Holdings Limited - CEO [33]

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Okay. As the market trend is that currently, China's market is still the primary sector dominated market. And when people buy the houses, the first choice is the primary new house rather than the secondhanded house. That's the first one.

The second one is that the conversion rate of the secondhand house is subject to the transaction price of the new house, which is controlled actually by the regulatory government. So you cannot use the figures of the developed countries to compare with our China's market. So it's a very different market. You know what I mean?

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Eric Wen, Blue Lotus [34]

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Okay. Yes.

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Operator [35]

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(Operator Instructions)

We do not have any questions at the moment. I would like to hand the conference back to our presenters today. Please go ahead.

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Michelle Yuan, Leju Holdings Limited - Deputy CFO [36]

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This concludes today's call. If you have any follow-up questions, please contact us at the numbers or e-mails provided on our earnings release and on our website. Thank you.

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Operator [37]

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Thank you. This concludes our conference for today. Thank you for your participation. You may all disconnect your lines now. Thank you.