Fangdd Network (NASDAQ: DUO): Can the Online Marketplace Ride Out the Chinese Property Downturn?

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Chinese online real estate marketplace Fangdd Network (NASDAQ: DUO) said in its annual report that on July 25, 2022, the Company switched auditors to the Audit Alliance of Singapore from KPMG Huazhen – one of the companies recently criticized by the Public Company Accounting Oversight Board (PCAOB). The move was noted in a May 16th Nikkei Asia and FT article:

The article note how the Annual Report did not give a reason for the change, but the move reduces the risk of being thrown off American stock exchanges.

Otherwise, Fangdd Network has had to deal with recent NASDAQ notices about meeting Minimum Bid Price Requirement and Minimum Market Value Deficiency as it attempts to ride out the Chinese property downturn.

OVERVIEW:

  • Fangdd Network Group is a leading PropTech company in China, focusing on providing real estate transaction digitalization services. The company operates a real estate-focused online platform in China. Leveraging technological capabilities, the company has built a suite of modular software products and SaaS solutions that simplify the traditionally cumbersome processes in real estate transactions and allow marketplace participants to effectively carry out their businesses. By improving the transparency and efficiency of the real estate transaction, the company brings a better experience for all parties involved in the real estate transaction process, including real estate sellers, agents and real estate buyers.
  • China’s real estate e-platform Fangdd makes Nasdaq Debut (Xinhua) November 2019
    • The deal size of the IPO contained 6 million American Depositary Shares (ADSs) at a price of 13 U.S. dollars apiece, each representing 25 Class A ordinary shares, the e-realtor said in a statement on Friday.
    • Fangdd has registered over 45 percent of the approximately 2 million real estate agents in China as of Dec. 31, 2018, and thus became the largest online real estate marketplace domestically, according to business consultancy Frost & Sullivan.
    • The e-platform also owns one of the largest property databases in China. As of June 30, Fangdd had 131 million properties in its database, covering homes listed for sale or for rent as well as those not currently on the market and verified through a comprehensive internal process, said its prospectus.
  • Behind the Bell: FangDD (Youtube) November 2019

RECENT FINANCIALS / NEWS:

  • FANGDD REPORTS FOURTH QUARTER AND FULL YEAR 2022 UNAUDITED FINANCIAL RESULTS March 2023Fourth Quarter 2022 Financial Highlights
    • Revenue for the three months ended December 31, 2022 decreased by 25.8% to RMB59.9 million (US$8.7 million) from RMB80.7 million for the same period of 2021.
    • Net loss for the three months ended December 31, 2022 decreased by 94.6% to RMB32.7 million (US$4.7 million) from RMB604.1 million for the same period of 2021.
    • Non-GAAP1 net loss was RMB30.1 million (US$4.4 million) for the three months ended December 31, 2022, compared to non-GAAP net loss of RMB591.6 million for the same period of 2021.
    Full Year 2022 Financial Highlights
    • Revenue in 2022 decreased by 73.9% to RMB245.9 million (US$35.7 million) from RMB942.4 million in 2021.
    • Net loss in 2022 decreased by 80.1% to RMB239.6 million (US$34.7 million) from RMB1,203.0 million in 2021.
    • Non-GAAP net loss was RMB222.9 million (US$32.3 million) in 2022, compared to non-GAAP net loss of RMB1,155.9 million in 2021.
    • As of December 31, 2022, the Company had cash and cash equivalents, restricted cash and short-term investments of RMB184.7 million (US$26.8 million), short-term bank borrowings of RMB72.5 million (US$10.5 million), and unutilized bank facilities of RMB80.0 million (US$11.60 million). In 2022, net cash used in operating activities was RMB127.0 million (US$18.4 million).
    • Mr. Xi Zeng, Chairman and Chief Executive Officer of FangDD, commented, “In 2022, new property sales decreased by 26.7% year-over-year in China, which represents the largest decline on record, leading to the outbreak of real estate developer liquidity risk. In 2022, the Company continued to control risks and losses to survive the market downturn. Going forward, the Company will proactively shrink the transaction size on our marketplace for new property business and improve the account-receivable management to control the operation risk caused by developer credit risk outbreak. The Company plans to strengthen cooperation with high-quality developers and carry out new projects with caution. At the same time, the Company will continue to explore the second growth curve in combination with the Company’s existing strengths and the industry’s new trajectory.”
    • On March 2, 2023, the Company entered into securities purchase agreements with several investors, pursuant to which the Company agreed to sell and issue an aggregate of 1,000,000 ADSs to such investors at a purchase price of US$0.6208 per ADS in a registered direct offering. On March 3, 2023, 322,164 ADSs were issued to one investor at the first closing. The offering is subject to terms and conditions, among others, that the closings shall consummate on or before March 16, 2023. As the additional closings did not take place by such date, the Company and the investors have mutually agreed to terminate the agreements. The Company intends to use the net proceeds from this offering for general corporate purposes. (See FangDD Announces US$620,800 Registered Direct Offering of American Depositary Shares)
  • FangDD Regains Compliance With Nasdaq Minimum Market Value Requirement March 2023
    • The Company was notified by Nasdaq on October 20, 2022 that it was not in compliance with the Nasdaq listing requirement to maintain a MVPHS of at least US$5 million for a period of 30 consecutive business days. The Company was provided a compliance period of 180 calendar days until April 18, 2023 to regain compliance. On March 24, 2023, based on the Company’s MVPHS for the last 11 consecutive business days, from March 9 to March 23, 2023, Nasdaq confirmed that the Company’s MVPHS had been greater than US$5 million.
  • DUO: Fangdd Cuts Costs to Ride Out the Real Estate Downturn (Zacks) November 2021
    • It has US$98 million in cash and trades at a negative US$5 million enterprise value. We believe the company’s scalable business model provide and cash reserves may give it the ability to survive the real estate downturn.
    • Most importantly the company has reduced its cash breakeven point.
  • Fangdd or FANG? China Real Estate Firm Adds 395% in Mystery Move (Bloomberg) June 2020
    • Maybe it was another case of mistaken identity, or just Pavlovian enthusiasm on a day when the FANG stocks were powering up. Whatever the reason, a company called Fangdd just jumped fivefold without any news to explain it.
    • Fangdd Network Group Ltd., a Shenzen, China-based real estate firm that trades in the U.S. under the ticker DUO, nearly quintupled on Tuesday, jumping 395% to close at $47.06 per American depository receipt after starting the day at $10.

KEY RATIOS:

1 YEAR CHART:

Finviz Chart

LONG TERM CHART:

Note: The long term Yahoo! Finance chart seems to be giving the wrong data.

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