Brean Initiates SouFun At Hold, Concerned With 'Business In Transition'

SouFun Holdings Ltd SFUN reported mixed results for 1Q, with the revenue beating expectations and the EPS missing the forecasts. The company also raised its 2016 guidance.

Brean Capital’s Fawne Jiang initiated coverage of SouFun Holdings with a Hold rating.

Positives

“We are encouraged by the solid performance SFUN has made in recent quarters following its transition to a full O2O platform,” Jiang mentioned.

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The analyst believes the company is making noticeable progress in direct sales, especially in the secondary home markets, as reflected in the robust GMV and revenue growth.

According to the Brean Capital report, “The increase of their commission rate in 2Q16 suggests traction of its business model and would help to further drive top-line growth as well as take off some margin pressure with its still aggressive hiring plans.”

However, Jiang pointed out that SouFun was still in transition, without visibility into sustainable earnings growth.

Results, Guidance

The company reported its 1Q16 revenue at $204.6 million, representing year-on-year growth of 62.3 percent, ahead of the consensus expectations, driven primarily by SouFun’s robust e-commerce business, which accounted for 64 percent of the total revenue for the quarter.

The non-GAAP EPS, however, came in at a ($0.24), which was below the consensus and driven by continued increase in cost of services, as SouFun continues to expand its physical presence.

Management increased the full-year 2016 revenue guidance, while also announcing an increase in its e-commerce commission rates from 1 percent to 1.5 percent, starting June.