China’s real estate internet portal Fang Holdings on Monday announced a change in its senior management and a proposed spin-off of the group’s research unit, China Index Holdings Limited (CIH), after the company’s total revenues fell to $83.6 million in the third quarter of 2018 — down 25.5 percent from the $112.2 million it brought in during the same period of 2017.
The New York Stock Exchange-listed company said in a statement that its founder Vincent Mo will be stepping aside as Fang’s CEO in favour of the company’s president, Jian Liu, effectively immediately. Mo, who started Fang as Soufun.com in 1999 will continue to serve as chairman of Fang’s board of directors.
Fifty-five year old Mo had once grown Fang, which started as a search engine for housing listings, into China’s largest online real estate platform, until the company has been eclipsed more recently by new competitors such as Warburg Pincus-backed Lianjia, as well as by local classifieds platform 58.com and its property listing affiliate, Anjuke.
Finance Team Also Gets a New Look
Mo had stepped back into the top executive position at Fang in 2014 when then CEO and president Richard Dai had resigned to pursue studies at Stanford University after leading the company’s operations for eight years.
Monday’s announcement also revealed that the company’s chief financial officer, Hua Lei would be leaving the position to take up the role of Fang’s chief investment officer. In the wake of that change, Zijin Li, Fang’s deputy chief financial officer, has been appointed as acting chief financial officer and board secretary to replace Hua Lei, effective immediately.
“I am very happy that Mr. Jian Liu and Mr. Zijin Li will shoulder more responsibilities for Fang and myself. I believe a new generation of Fang’s management will reshape the company and bring in a fresh working style,” said Mo in the statement.
Research Unit Could Be Spun Off Solo
The Beijing-based company also added that it is contemplating a spin-off of CIH, the holding firm for its China Index Academy research unit to explore different options, including a potential distribution of CIH’s ordinary shares to Fang’s shareholders, or a potential private sale of CIH’s ordinary shares, or a potential listing of CIH on a major stock exchange.
China Index Academy calls itself China’s largest independent property research organization ,with more than 15 offices nationwide, and produces regular reports on residential, commercial and industrial markets.
In Fang’s third quarter 2018 results, the company reported that while other parts of its business such as marketing services, listing services and e-commerce services were declining, increased demands for its database and research services have driven revenues from value-added services to $10.3 million, up 33.3 percent from the $7.7 million earned in the corresponding period of 2017.
Fang Initiatives Fall Flat
Fang, founded during the first China internet boom in 1999, became the country’s leading residential real estate portal by helping Chinese real estate developers and agents market properties through banner advertising on the site’s home page.
This business model of selling banner ads to cash-rich real estate developers started to suffer in 2014 when China’s property market entered a period of slower growth and greater risk. To counter this shift, Fang sunk some $211 million into creating its own network of agency offices, hoping to expand beyond selling listings.
The company also launched a price war with offline agents by offering to facilitate deals at a 0.5 percent commission rate — the lowest in the industry — to attract home buyers. The strategy undermined Fang’s relationships with traditional intermediaries, who then boycotted the platform, which further drove down the company’s ad sales revenues.
In 2017, Fang publicly acknowledged the failure of its transformation and announced a return to its traditional advertising strategy, although revenues from its listings and marketing services, have both been shrinking.
Fang’s revenue from listing services was $29.2 million in the third quarter of 2018, a decrease of 38 percent from $47.2 million in the corresponding period of 2017, while revenue from marketing service was $35.7 million, down 4.1 percent from the $37.3 million the segment earned during the same period of 2017.