SouFun Results: Real Estate Pick-Up 搜房业绩：房屋交易回暖
The latest quarterly results from online real estate services firm SouFun (NYSE: SFUN) point to a pick-up in real estate buying and selling, which should benefit names like SouFun and rival E-House (NYSE: EJ) that benefit from sales activity and are less concerned with pricing trends. SouFun has given us a wide range of numbers in its latest quarterly report, but the one that caught my attention was the company’s decision to raise its 2012 revenue outlook to $400-$420 million, from a previous outlook of $390-$410 million.
Since the company has already reported its results for the first 3 quarters of the year, that means it expects to earn about $254 million in the second half. That would be far better than the $155 million it earned in the first half when buying and selling of homes was still slow as property owners waited to see if Beijing would relax its tight restrictions designed to curb speculation and lower prices.
Interestingly, SouFun shares dropped nearly 5 percent after its latest results came out, indicating investors had perhaps hoped for even more optimistic figures as sales activity starts to pick up. But the company’s shares are still up nearly 50 percent since the end of August amid improving sentiment towards a sector whose shares had previously taken a hit over the last year. E-House share are actually down about 15 percent since late August, as that company grapples with internal issues related to a recent restructuring.
It’s interesting to note that one thing SouFun’s results do NOT seem to reflect is a resumption of the rapidly rising real estate prices that China saw for most of the decade from 2000 to 2010. Many home buyers purchased properties in that time hoping to make a quick profit by selling them a year or 2 later as prices quickly rose. But the price hikes suddenly stopped early last year when Beijing rolled out a number of steps designed to cool the market and make homes more affordable for average Chinese.
Many home owners were waiting to see if Beijing would ease its tightening moves, which it didn’t do, and now many are starting to sell their properties on expectation that the tight policies will continue for at least the next 1-3 years. That’s good news for companies like SouFun, which make money from big transaction volumes regardless of the price.
In its latest results, SouFun painted a mixed picture that showed its broader situation moving in a generally positive direction. Marketing services, its biggest business accounting for 63 percent of revenue, fell 2.4 percent for the quarter. That marked an improvement from the previous quarter’s 2.9 percent decline even though it’s never good to see your main revenue source falling. In a more positive sign, listing services that make up the company’s second biggest revenue source rose 24 percent, reversing a 12 percent decline in the previous quarter.
Based on what I’m hearing from friends in the business, activity in the sector is indeed picking up, largely driven by buyers looking for bargains and owners increasingly willing to sell their properties for small profits or even losses. Look for the pick up in transactions to continue into at least the first half of next year, which should mean good news for transaction-dependent real estate service companies like SouFun and E-House.
Bottom line: Real estate service firms like SouFun and E-House should see accelerating revenue growth in the next 6-12 months as activity picks up in the Chinese property market.
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