PropertyGuru Group Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
August 24, 2023

There are 6 speakers on the call.

Operator

Thank you for standing by and welcome to the PropertyGuru Group's 2nd Quarter 2023 Earnings Conference Call. Currently, all participants are in a listen only mode. As a reminder, today's program will be recorded. If anyone objects, please disconnect now. After the prepared remarks, we'll conduct a question and answer session using the raise hand function of Zoom.

Operator

Please ensure that Zoom shows your name and firm. In the Q and A session, we will only take questions from those participants who are named. Now let me introduce Nat Otis, VP of Investor Relations. Mr. Otis, please go ahead.

Speaker 1

Good morning and good evening. Welcome to PropertyGuru Group's Q2 2023 earnings conference call. On the call today are Hari Krishnan, CEO and Managing Director and Joe Disch, CFO. Before we get started, a few reminders. Firstly, all results are available in the earnings release that can be found in the Investors section of our website.

Speaker 1

Secondly, today's webcast is being recorded. A replay along with the transcript will also be available in the Investors section of our website. Thirdly, we will be making forward looking statements, including, but not limited to, statements regarding our future results and expectations for the business. These results are neither promises nor guarantees and involve risks and uncertainties that may cause actual results to vary materially. Please refer to our earnings release and SEC filings for more information regarding risk factors.

Speaker 1

Forward looking statements are based on current expectations and the company is not obligated to update them, except as required by law. Fourthly, this call will also contain non IFRS financial measures. For a reconciliation of non IFRS financial measures to the most directly comparable IFRS metric, please see our earnings press release. Lastly, all dollar references are in Singapore dollars unless otherwise stated. With that, let me turn the call over to Hari.

Speaker 2

Thank you for joining us today for our Q2 2023 earnings conference call. PropertyGuru delivered another good quarter of growth with expanding operational profitability. This was the result of focused investments and good execution despite ongoing macro challenges in Vietnam. We've posted double digit revenue growth and double digit adjusted EBITDA margin, standing firm in the Southeast Asian economy wrestling with inflation and uncertainty. We are making good progress in delivering solutions that empower all our customers to make confident property decisions.

Speaker 2

Let me walk you through some of the highlights from this quarter. In Singapore, PropertyGuru is thriving in a bustling property market with strong sales and rental activity. Asking prices remain resilient despite rising interest rates and persistent efforts by the government to rein in the strong market. While some decrease in demand was expected, the level of durability is notable given that our PropertyGuru sales demand index was down only 4% from the Q1. For the 5th quarter in a row, construction related GDP growth exceeded 6%, while private supply completions more than doubled in the first half of twenty twenty three compared to 2022, both of which bode well for new supply entering the market going forward.

Speaker 2

In Malaysia, the gap between buyers and sellers increased in the quarter as rising prices and interest rates pushed homebuyers to delay their transactions. Our price index was up 2.1% from the 1st quarter, while the demand index dropped 10.2%. Overall, while Malaysia's GDP is projected to have slowed down in the second quarter, we are seeing positive signs as we move into the back half of the year. Recent state elections should help government stability and consumer confidence. Inflation reached a year long low point in June and the Central Bank chose not to increase rates in July.

Speaker 2

In addition, the Malaysian Prime Minister recently announced a targeted plan to increase the country's growth over the next decade, which included over $1,000,000,000 in financial support for first time homeowners on homes below RM300000. Lastly, I would also point out that the real estate housing developers of Malaysia reported that sales of both residential and commercial units were up 120% in the first half of twenty twenty three versus the second half of twenty twenty two, despite the number of unsold units remaining elevated. In Vietnam, conditions remain challenging. Governmental interventions initially aimed at regulating the property market have impacted consumer sentiment and transaction activities so far in 2023. However, recent monetary easing and a positive longer term economic outlook should help point the direction to a recovery as we continue to actively invest in products and infrastructure in anticipation of a return to healthier growth rates.

Speaker 2

Vietnam remains one of the most vibrant economies in Southeast Asia with increasing middle class expansion and urbanization. The need for good quality housing in the townships being built in Ho Chi Minh City, Hanoi and beyond will be there for years to come. On the technological front, utilizing generative AI and machine learning, we continue to bolster our market leading products while also helping to make our operations more efficient. In June, we launched GuruPix, a personalized feed of property listings based on machine learning algorithms. We are very excited about the opportunity this product this product offers to match a person's budget, property type and location to show personalized and recent listings.

Speaker 2

We introduced lead management for property agents in Singapore, which will help subscribers manage their leads by using a single inbox for all email, phone, SMS, and WhatsApp contacts, while also adding a heat index and insights on lead preferences. In both Singapore and Malaysia this quarter, we launched a revamp of our new homes discovery page, increasing the coverage of new properties and better organizing the customer experience to make it easier to find ones under development. Generativeai continues to help us operate more efficiently and effectively in product development and code quality. We have been experimenting with the auto creation of listing descriptions that benefit agent efficiency as well as AI image moderation to continue to improve listing quality. As of June end, our mortgage business had brokered over $5,000,000,000 worth of home loans, a great indication of the continued growth in trust and confidence that customers have placed in PropertyGuru for securing home financing.

Speaker 2

We have also made good in digitizing the traditionally manual loan application process making it convenient and mobile friendly with round the clock access for home loan applicants. Our solution is being piloted with customers of 1 of the major banks in Singapore and the feedback has been positive. This quarter, our data and software solutions team released a progressive ESG framework that gives valuable insights into building climate smart real estate. The actionable strategies for property developers and investors embrace sustainability without compromising financial viability. For example, in markets like Malaysia, where recent flooding caused more than $1,000,000,000 in losses, we analyze flood risk data and the correlation with property prices.

Speaker 2

This report is part of broader market activities educating developers and planners on data driven insights to drive responsible property development in our region. The quarter saw good adoption of our flagship insights dashboard, DataSense by new governmental agencies in Singapore and Malaysia, REITs and industry bodies such as the Real Estate and Housing Developers Association. I now wanted to touch upon some strategic decisions that we announced this week. As mentioned in our letter, we will phase out our Indonesia market based business, Rooma.com and sunset 1 of our SaaS products, FastKey. These decisions reflect our relentless efforts to make focused investments that maximize the value we create for all our stakeholders with the objective of driving sustainable growth and doubling down on businesses with strong unit economics.

Speaker 2

Though these decisions are tough, they are necessary for us to focus and deliver our next phase of growth and will allow us to prioritize our resources accordingly. We have some good people leaving PropertyGuru and I wish them success in their future endeavors. Overall, this was a quarter in which we made inroads in some businesses, sharpened our focus further by clarifying our priorities for investment and delivered increasing operating leverage and revenue growth. Outside of Vietnam, we are delighted with this quarter's performance and remain optimistic about the future. We believe in the fundamental opportunities in our core markets and are committed to future growth and profitability anchored around our vision to power communities to live, work and thrive in tomorrow's cities.

Speaker 2

I will now hand it over to Joe to walk you through our financials.

Speaker 3

Thanks, Harry. PropertyGuru had another good quarter with revenues of $37,000,000 up 12% from the Q2 of 2022. Revenue growth outside of Vietnam, where we're undergoing some temporary government induced challenges, was particularly positive, up 22% from the Q2 of last year, with every segment delivering double digit growth. This shows how despite challenging macroeconomic conditions, our businesses can flourish. What also marked this quarter out was our strong control of costs as we demonstrated continued operating leverage improvements.

Speaker 3

Our adjusted EBITDA grew to $5,000,000 from just over breakeven in the prior year quarter as 113% of incremental year on year revenue was converted into EBITDA, an excellent result. In Marketplaces, revenue was $35,000,000 in the 2nd quarter, up 11% year over year with an adjusted EBITDA margin of 59%, up from 41% in the Q2 of 2022. Excluding Vietnam, Marketplaces revenue was up 21% year on year and adjusted EBITDA margin was 66%. In Singapore, I'm happy to report we now have over 16,000 agents as our agent pool grew again this quarter. Our customer renewal rate was up slightly to 82%, and our quarterly average revenue per agent, or ARPA, was up 25% from the prior year period.

Speaker 3

This is a fantastic reflection on the success of our product and pricing developments. ARPA has been the primary driver of overall revenue growth in Singapore, which was up 25% to £22,000,000 from the Q1 of 2022. The added ARPA and good cost control also helped to bolster the adjusted EBITDA, which was $17,000,000 in the quarter for a 77% margin, growing more than 10 percentage points year over year. In Malaysia, revenues were $7,000,000 up 12% from the previous year quarter, and our adjusted EBITDA increased almost $3,000,000 to 4,000,000 dollars Malaysia is a great example of our operating leverage expansion and improved yield as revenue increased $700,000 year over year and our adjusted EBITDA increased $2,700,000 As a result, our adjusted EBITDA grew to 60% this quarter from 21% in the Q2 of 2022. I'm pleased to see our Malaysia business start to show similar operating leverage to that which we have delivered in Singapore for many years now.

Speaker 3

In Vietnam, revenue was down 27% from the Q2 of 2022 as a 36% increase in our average revenue per listing, or ARPL, helped to offset a 46% drop in listings. Of note, the minimum period of listing validity moved from 7 to 10 days this quarter, which increased the ARPL and subsequently decreased the number of listings in the quarter. The challenging property market conditions led to some agents holding back from posting listings, while those more established agents who remained active continue to use our premium services to maximize lead yield. Adjusted EBITDA in Vietnam was just under $1,000,000 for a 17% margin. Finally, FinTech and Data Services combined revenue was up 47% year over year, and adjusted EBITDA was a loss of $3,000,000 Harry has spoken about the progress we are making in these areas.

Speaker 3

Both are long term strategic opportunities for us as we continue to invest and build out the business. On the balance sheet, we ended the quarter with $302,000,000 in cash. While we're maintaining our full year 2023 outlook ranges between $160,000,000 $170,000,000 in revenues and $11,000,000 to $15,000,000 in adjusted EBITDA, we now project revenue will be at the bottom end of the range. The most significant factor at Play is Vietnam, where we're assuming early signs of market improvement, will be seen in late 2023. Longer term, we remain poised to take advantage of both the macro outperformance of our core Southeast Asian marketplaces and positive demographic trends related to property ownership.

Speaker 3

In summary, it has been a good quarter for PropertyGuru. I'm particularly pleased with how well the market has reacted to current market conditions as we utilize technology, internal automation and proven cost management to improve adjusted EBITDA. This bodes well for future margin expansion and profitability. Let me finish by underscoring something that Harro said. As any successful company, we regularly review our progress as a business and make sure, when necessary, to ensure that we are optimizing resources and remaining on track in achieving our goals.

Speaker 3

The Indonesia and Farski decisions were made with that clear business focus in mind. These decisions are not expected to have a material impact on our 2023 outlook. However, it allows our business to focus both monetary resources and executive attention on achieving the long term goals of the company. I would like to thank all our gurus for their hard work and commitment to PropertyGuru and thank our customers for their continued support. I will now turn the call over for questions.

Speaker 3

Operator, we're ready for our first question.

Operator

Thanks, Joe. We will now take your questions. Please use the raise hand function if you'd like to ask a question. To facilitate the Q and A session, I'll invite you to ask Our first question is going to come from Nick Jones with JMP Securities.

Speaker 4

Nick? Great. Thanks for taking the questions. Could you touch on, I guess, the decision to exit Indonesia and kind of sunset the fast key product? I mean, do we kind of triangulate that this is maybe around a $5,000,000 impact on a full year numbers?

Speaker 4

And then, as we think about kind of the longer term opportunity, Indonesia had a pretty large population. I mean, is this a market you'd consider revisiting in the future? Are there other geographic expansionary opportunities? Just any color on how you're thinking about your geographic footprint today amid some of the macro challenges?

Speaker 2

Justin, thank you for your question. Maybe I'll touch upon some of the strategic rationale and then regarding the numbers itself, I'll ask Joe to add on. But essentially for us this is something we've done progressively over the years. We look at our data. When you look at emerging markets you need to give it sufficient time for the data to settle.

Speaker 2

And we're looking for unit economics and we're looking for drivers over there. We have sufficient experience in our markets. And as Joe pointed out, we now know how to do the results we delivered in Singapore and Vietnam, we're now beginning to show them in Malaysia as well. I think with Indonesia, we've been there over 10 years. We run the FastKey business for almost 8 years.

Speaker 2

We've seen enough to give us a sense of the monetization opportunity, but also the unit economics and how it's going to grow. We felt it's better to focus executive attention and resources on the other projects. So I think for us, it is very much not a cost control measure or anything. It is much more a strategic attention and resource focus measure that we have implemented. With regards to geographic expansion, we are very focused on the 4 businesses, the 4 countries we're in right now and the adjacent business models both Fintech and Data Solutions both look good.

Speaker 2

We will continue to invest hard into them as well as into our core businesses in Singapore, Malaysia, and Vietnam. We're not looking to expand into other geographies or anything for now. But as always, we'll use data to inform these decisions and we'll, you know, if we need to relook at something in the future, we'll look at it. Specific to Indonesia, I think the way to think about this yes it's a large country with a large population but with regards to the real estate market it's really localized extensively around the Greater Jakarta region and if you size the population there that's 30,000,000 to 40,000,000 people. For a sense of scale, Vietnam is about 95 to 100,000,000 people.

Speaker 2

And you're actually able to monetize and do business throughout that country. I think in Indonesia, while we've tried a number of different business models, we have not seen them actually work out well for us. And frankly, we're not seeing good unit economics from any other prop tech player in that market either. So we felt it's the right time for us to refocus our attention elsewhere. Specific to the numbers for the year, maybe I'll ask Joe to sort of augment that.

Speaker 3

Yes, sure. So in terms of our outlook, which is obviously revenue and adjusted EBITDA, this change is not going to have a material impact on this year. These businesses are pretty small, and obviously, the action we're taking is towards the back end of the year. So it's not going to have a material on the material impact on the numbers for our outlook. We obviously have booked about $8,000,000 of impairments and restructuring costs in relation Indonesia and Farske.

Speaker 3

But obviously, these both fall below our adjusted EBITDA line.

Speaker 4

Great. And maybe just a quick follow-up on Guru PIX. How with the launch of this in June, how is the engagement changing from users? Are you seeing kind of an uptick in pages per visit or any kind of early signs that these kind of machine learning AI powered interfaces are kind of driving more engagement?

Speaker 2

Yes. Thanks for that question. I'm really excited about Gurupik. I think the concept of personalizing the experience, having a personalized feed, something we're used to in other context when it comes to entertainment or media. So in the real estate space to be able to actually look at your preferences, look at your browsing behavior, the kinds of properties you're looking at, but also frankly the properties you're hiding.

Speaker 2

You have the ability to actually hide listings that perhaps you're not interested in. And all of that activity is factored into the machine learning and how it iterates over time. Really the goal here more than anything else is to personalize that experience, drive greater engagement there and share some of those insights with the other side of the marketplace as well with the lead management tool we mentioned for agents. Over time, we'll get more and more personalization and more and more information to share with our agents, therefore doing a better job of matching supply with demand. So I think right now to be candid, it's early days and we're still experimenting.

Speaker 2

We're pleased with our option today, but nothing that's, you know, given how large our Singapore business is, for instance, you're not going to see massive movements on that in such a short time period.

Speaker 4

Great. Thanks, Harry. Thanks, Jeff.

Operator

Thank you. Okay. Our next question is going to come from Nelson Chong with Citi. Nelson, go ahead.

Speaker 5

Hi, Harry. Hi, Joe. Hi, Yvette. Thanks for taking my questions. So my first question is regarding the Singapore market.

Speaker 5

So wondering management if you can share your observation of residential demand in July August from primary and secondary markets in Singapore recently and the tightening of residential policy? That would be great. Thanks.

Speaker 2

Yes, like I mentioned, I think when you look at the first half, I'll get your question. But if you look at the first half, we saw when you look at private new homes, the volume of supply was double that that was released in the first half of twenty twenty two. So that's really good. A lot more supply coming online. When it comes to transaction volumes, that is dipping.

Speaker 2

I think we've had 2 rounds of cooling measures that we implemented in 2022. I think there's a little bit of correction that was warranted given prices that really taken off, as you might recall, when demand was far ahead of supply. We that sort of demand cooling off a little bit does not necessarily bode badly for the market. There's a lot of supply that it continues to come online. Even in the recent, you know, we've just passed National Day here in Singapore, you saw the PM come out and talk a lot about the HDB and how they're going to launch more projects and how they're going to invest in their estates.

Speaker 2

So I think there's a lot of focus on continued development and new supply coming online. Construction, as I mentioned, its GDP growth was north of 6% again. So there are a lot of good indicators. Transaction volumes are off a little bit, but as Joe also mentioned, more and more agents continue to join the marketplace. So clearly, both from our perspective, but also from the agents and agencies, it continues to be a healthy market and perhaps more sustainable with the prices cooling off a little bit.

Speaker 5

Thank you. And then my second question is regarding the wet net market And while we start to see some like silver lining, given the monetary easing, does management expect earlier recovery versus the timing that we discussed in last quarter's earnings call, which I believe it should be late 2023 early 2024? Thank you.

Speaker 2

So, listen, I think when it comes to Vietnam, you know, we as we mentioned, there's a lot of measures the government put in. I think the result, as I stated, has been, that, you know, it's impacted consumer sentiment. That's just the truth of the matter. We continue to forecast that recovery will happen at the earliest in late 2023, so that hasn't changed. Obviously, if it happens sooner, we'd love to see that, But we're not seeing any indications as of now that it'll happen sooner than that.

Speaker 2

But the government continues to message the right kind of messages, you know, rate cuts earlier, etcetera. So I think there's a lot of policy, but there's always going to be a little bit of a lag there when it comes to consumer demand and for them to actually see that, you know, the government has essentially said that all their corrective measures are complete. So we forecast still late 2023 for a start of recovery in that market.

Speaker 5

Thank you. And then my last question is regarding the investment. Given that we have faced out the Indonesian market and also the fast key business and wondering what would be the top priority of investment for the company going forward and do we still

Speaker 2

I think with regards to investment, I talked about some of the areas we are really excited about, generative AI and machine learning. We're investing a lot of tech into even our core businesses in Singapore, Malaysia and Vietnam. I talked about some examples. Really excited by the progress that both the Fintech business as well as the data sense product are making. So to see that kind of progress happening with Fintech, over $5,000,000,000 of home loans brokered, some of the partnerships with the banks driving a lot more automation under the hood.

Speaker 2

These are encouraging. So we will continue to invest hard into those spaces where we're pleased with the progress we're seeing there. And when it comes to data sense, you know, the adoption that we're beginning to see from REITs, from urban planners, from governments both in Malaysia as well as in Singapore, industry bodies like RADAR in Malaysia. These are this is really, really encouraging signs that this product could have legs. So I think those investments will continue at pace as well as in newer markets like Thailand, where we continue to be in an investment mode.

Speaker 2

So I think those will be the primary focus for investment right now. Maybe with M and A, I'll hand off to Joe to comment more. Yes.

Speaker 3

Thanks, Harry. And I think as previously stated, our major focus areas are data and FinTech. We already have presence, but looking into other markets and other types of products. We also look towards develop our operating systems and also the home services where we obviously already made an investment in Singapore in Send Helper at the back end of last year. So those would be our priorities.

Speaker 3

And I think one of the challenges we've had, we've got a great corp dev team that's working away looking through opportunities. It's just really size and scale, which is hard to find in our core markets. So we definitely are looking broadly across our region to see if there's any other really attractive opportunities. So we're casting the net fairly wide. We're early days still in that respect, but there's nothing new specifically to report, but we're still having a very good look on a wide range of opportunities.

Operator

Okay. If we have any other questions, please use the raise hand function. We'll wait a second to see if there's any more. Okay. It doesn't look like we have any more questions.

Operator

So that will conclude the Q and A. Let me turn the conference call back to Hari for any closing remarks.

Speaker 2

We look forward to sharing our continued progress with you next quarter. Until then, thank you all for joining us today. Goodbye.

Remove Ads
Powered by Quartr
Earnings Conference Call
PropertyGuru Group Q2 2023
00:00 / 00:00
Remove Ads