Opinion | Real estate services: time to buy?
Soufun's latest results point to a strong rebound for buying and selling activity in the real estate market, providing potential upside for the company's profits and shares.
After showing early signs of a pickup last fall, online real estate services firm Soufun (NYSE: SFUN) is sending even stronger signals that springtime may indeed be coming for companies that make their money from buying and selling activity in the property market. Here it's important to point out that this coming spring for market leaders Soufun and E-House doesn't mean that China's real estate prices are going to start rising sharply again anytime soon. Instead, what it means is that real estate buyers and sellers are starting to feel confident that the market has stabilised after more than a year of uncertainty due to government cooling policies.
Of course there's always a chance the government could take new measures to cool the market, where prices are now largely flat to growing slightly. But since it's been more than a year without any new government moves, home buyers and sellers are probably starting to feel they can safely start to re-enter the market because they know what to expect.
New stability and waning uncertainty have been steadily boosting transaction volumes in the market, as buyers and sellers who stood on the sidelines for much of the last year resume their activity, according to one of my friends in the business. That kind of activity is what drives demand for both real estate brokers and companies like Soufun, which make most of their money from property buying and selling regardless of pricing trends.
Let's have a closer look at Soufun's latest results, which show the company's revenue up 30 per cent in the fourth quarter to US$147.5 million, a strong acceleration from the previous quarter's 17 per cent rise. The growth was stronger than the company's previous guidance, allowing it to beat its earlier revenue target for all of 2012 by a comfortable margin. Profit growth also accelerated sharply to 50 per cent, a big jump over the 15 per cent rise in the third quarter.
Within the total revenue figure, growth from traditional marketing services returned to a positive track, recording slight rise after declining in the previous quarter. But perhaps most encouraging, the company's newer and fast growing e-commerce services revenue quadrupled to US$40 million, accounting for nearly a third of Soufun's total revenue.