Fangdd Submits Prospectus to SEC Seeking IPO in New York
Fangdd Network Group Ltd. has filed its prospectus with the U.S. SEC, seeking to become publicly listed in New York under the symbol "DUO.” Fangdd, which hopes to become the first listed SaaS company in China's industrial internet, is an internet technology leader in residential services. Through innovative use of mobile internet technology, cloud technology and big data, it provides SaaS solutions for real estate brokers in China.
Fangdd has become a leading internet technology company in China's residential service sector. It operates the largest online real estate trading platform in China enabled by SaaS.
According to data provided by Frost & Sullivan, as of Dec. 31, 2018, among the nearly 2 million real estate brokers in China, Fangdd’s platform had more than 910,000 registered brokers with a penetration rate of more than 45%. And the number continues to grow. As of June 30, 2019, the platform had more than 1.07 million registered brokers.
The Following is an Extract From the Prospectus:
Our mission is to make it easy for real estate agents to do business and empower them to achieve their dreams. We design products and services to help the agents on our platform grow and succeed.
Through innovative use of mobile internet, cloud and big data, we are a pioneer of the property technology industry, or PropTech industry, in China. We have fundamentally revolutionized the way real estate agents conduct business through our products and solutions that help to connect them with essential business resources, including customers, property listings, capital and transaction data. We empower agents to easily conduct business online, improve productivity and broaden the scope of their services.
Two of our co-founders, our chief executive officer and chief operating officer, started their careers as real estate agents in China decades ago. They witnessed inefficiencies in real estate transactions first-hand and as a result, felt the need to improve the transaction experience. Real estate transactions, unlike other types of consumer purchases, are significant decisions for both buyer and seller and often involve complex transaction processes. Agents are more experienced at navigating these processes and with the appropriate support and resources, uniquely qualified to help consumers with their decisions. Our third co-founder, who is also our chief technology officer, has decade-long experience in internet and technology. Together, our three co-founders established our company in 2011 to improve the way agents run their business through technology.
We are a leading PropTech company in China, operating China’s largest online real estate marketplace as measured by the number of registered agents in our marketplace as of December 31, 2018, according to Frost & Sullivan. Of the approximately 2.0 million real estate agents in China, more then 911,000 were on our platform as of December 31, 2018, representing a penetration rate of over 45%.
To address the challenges faced by agents and to make real estate transactions easy, we have built, from the ground up, a suite of modular products and services powered by technology that simplify traditionally cumbersome processes in real estate transactions and allow agents and agencies to effectively grow their businesses. We provide agents with a dashboard to manage their clients, listings and transactions history online with ease. We also connect agents with essential business resources through a smart matching system and provide them with both insights and direct access to business intelligence tools to analyze data and optimize the running and management of their businesses.
A critical element of our solutions is our property database. This database is one of the largest of its kind in China according to Frost & Sullivan. As of June 30, 2019, we had 131 million properties in our 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.
Our technology-empowered products and services are easy-to-use and intuitive. As agents improve the way they conduct business and manage their day-to-day operation through the use of our products and solutions, they become increasingly dependent on our tools and services to source and execute real estate transactions. This enables us to develop an agent-centric, open platform and build a marketplace where real estate agents complete transactions.
When agents open their online shops in our marketplace, we create unique profiles for them. Over time, we update and populate these profiles based on their history on our platform, performance and expertise. With these profiles, we are able to better understand the needs of these agents and tailor our products and services for them. For example, we match agents with the most suitable listings as well as buyers, sellers, landlords and renters. The relevance of our recommendations increases the likelihood of successful transactions on our platform.
We strive to be a one-stop shop for real estate agents and real estate transactions. In addition to facilitating transactions, we also provide access to providers of transaction-related services, such as third-party financial institutions. This has enabled our ecosystem to grow vibrantly and sustainably.
Five-Step Formula for Continued Growth
Our approach to helping agents do business can be broken up into five steps. This innovative model has helped drive our success to date, and we believe it will continue to drive both our own success as well as the development of the industry as a whole in the future.
First, we help agents move their traditionally offline businesses online. Through innovative use of technology and data, our marketplace allows third-party real estate agents to establish online shops, conduct their business and to complete transactions online using a comprehensive suite of technology-driven products and services. We also help connect these agents to other agents, buyers and sellers of properties, and other transaction-related service providers. As an independent marketplace, we do not hire our own agents and avoid conflicts of interest with the agents on our marketplace. Instead, we provide the tools necessary to facilitate transactions and encourage marketplace participants to actively engage with one another. As of June 30, 2019, our marketplace had approximately 1,071,000 registered agents.
Second, we empower agents to do more business in a better way through our technology-empowered products and solutions. In addition to providing the infrastructure to facilitate transactions and a forum for agents and other marketplace participants to engage with one another, we provide customized products and solutions that help agents enhance the efficiency of their overall operations and do more online. For example, we have built a unique agent ranking system that helps establish an agent’s credibility and brand, based on both actual performance and user ratings. Using this system, we are able to effectively match agents with the most relevant property listings, buyers, sellers and tenants based on each agent’s individual strengths, track record, and ratings. In 2018, we had 317,342 active agents on our marketplace.
Third, in addition to helping agents manage their businesses, we facilitate transactions directly on our platform. Our innovative business model has made “closed-loop transactions” possible — a term we use to describe a process whereby the major steps of a real estate transaction are facilitated through or completed in our marketplace. Not only do we provide agents with access to local and cross-regional and intra-city listings and buyers, but we also provide the services and tools required to complete transactions. As a result, as agents more effectively and actively engage in our marketplace, more transactions are facilitated through our marketplace. The closed-loop GMV completed on our platform increased by 53.9% from RMB73.9 billion in 2017 to RMB113.7 billion (US$16.6 billion) in 2018, and by 100.2% from RMB45.6 billion in the six months ended June 30, 2018 to RMB91.3 billion (US$13.3 billion) in the six months ended June 30, 2019.
Fourth, we monetize transactions and the relationship that we have with our agents. Through our marketplace and value-added services, we generate two types of revenue—commission-based revenue and revenue from various innovation initiatives and other value-added services, please see “Business—Our Revenue Sources.” As transaction volume increases, agents continue to use the products and services that we provide, move more of their business online, and increasingly rely on our tools and resources to complete transactions. As a result, we are able to more effectively monetize our relationship with the agents and the transactions facilitated or completed in our marketplace.
Fifth, we continue to improve and innovate our technology, products and services to improve the overall marketplace experience as well as broaden our revenue sources. As a result of the transactions that we facilitate and the data that we accumulate, we have a deep understanding of our marketplace participants and a holistic view of their needs. This allows us to continuously innovate, provide additional products and services including other transaction-related services and attract new marketplace participants.
Our Revenue Sources
Revenue from Base Commission from Transactions. We earn revenue from real estate sellers and buyers for commission-based transactions in our marketplace. We pay a large portion of our commission revenue as fees to agents. We generated commission-based GMV of RMB68.6 billion, RMB73.9 billion and RMB88.6 billion (US$12.9 billion) in our marketplace in 2016, 2017 and 2018, respectively. We generated commission-based GMV of RMB35.3 billion and RMB56.7 billion (US$8.3 billion) in the six months ended June 30, 2018 and 2019, respectively. In 2018, our typical commission rates before paying the agents for their services range from 2% to 4%. Our revenue from base commission from transactions increased by 15.9% from RMB1.4 billion in 2016 to RMB1.7 billion in 2017, and further by 23.1% to RMB2.0 billion (US$296.3 million) in 2018. Our revenue from base commission from transactions increased by 67.9% from RMB915.4 million in the six months ended June 30, 2018 to RMB1.5 billion (US$223.9 million) in the six months ended June 30, 2019.
Leveraging our innovative business model, our immense and verified database and the enormous real estate market in China, we have scaled rapidly while reducing our operating expenses as a percentage of our total revenue. Our revenue increased by 21.9% from RMB1.5 billion in 2016 to RMB1.8 billion in 2017, and further by 26.9% to RMB2.3 billion (US$332.4 million) in 2018. Our revenue increased by 55.4% from RMB1.0 billion in the six months ended June 30, 2018 to RMB1.6 billion (US$233.7 million) in the six months ended June 30, 2019. As our potential for scalability continued to materialize, we had a net income of RMB0.6 million in 2017 and RMB104.0 million (US$15.2 million) in 2018, compared to a net loss of RMB332.1 million in 2016. We had a net income of RMB100.3 million (US$14.6 million) in the six months ended June 30, 2019, increased by 166.6% from RMB37.6 million in the six months ended June 30, 2018.
Property agents face significant challenges in China. The market in China is highly fragmented, with total number of agents in the top five property agencies only represented approximately 14% of total agents in 2017. Agents have difficulties in building brands in crowded local markets, connecting potential clients, and differentiating their qualifications and listings. Furthermore, listing information online is often inaccurate, making it difficult for real estate buyers to find reliable information or trustworthy real estate professionals. Limited and inefficient access to prospective real estate buyers and property resources has caused agents to operate at a very low efficiency level.
According to Frost & Sullivan, the residential property market in China is expected to continue to grow. The total market size including property transactions and related services is expected to reach RMB33.4 trillion in 2023, rising at a compound annual growth rate, or CAGR, of 9.2% from 2018. Over 38.0% of all primary and secondary residential property transactions in China were facilitated by real estate agents in 2018, and the percentage is expected to reach over 49.0% in 2023. The total value transacted through residential property agents in China was approximately RMB6.8 trillion in 2018 and is projected to approach RMB13.6 trillion by 2023, representing a CAGR of 15.1%. Overall commission revenue from residential properties transactions in China is expected to reach RMB343.6 billion in 2023, representing a CAGR of 22.6% from 2018.
Leveraging the significant growth of China’s internet and mobile users in recent years, online residential property agent service platforms are well positioned to solve the inefficiencies of traditional offline property agent services market. Online residential property agent services platform enables real estate buyers to acquire information of residential properties online and provides business opportunities and transaction tools to property agents. It spearheads a new form of agent service, merging the best of online and traditional property agent service model into an integrated online and offline transaction experience. Utilizing cloud, big data and AI technologies, online residential property agent services platform is in the midst of revolutionizing traditional property agent service market to support technology-powered transaction experience for both agents and real estate buyers. According to Frost & Sullivan, the current addressable market of online residential property agent services platform is estimated to be approximately RMB17.7 trillion (US$2.6 trillion) in 2018, which is derived from primary and secondary residential transactions, and is expected to continue to expand.
We believe that the following competitive strengths contribute to our success and differentiate us from our competitors:
●largest technology-empowered online real estate marketplace in China with significant network effects;
●independent real estate platform free of conflicts of interest;
●extensive and verified online property database and listings;
●innovative closed-loop online real estate transaction model;
●powerful technology infrastructure and data insights; and
●experienced and visionary team.
We aim to maintain and strengthen our position as the largest online real estate marketplace in China. We intend to focus on the following key strategies in pursuit of our goal:
●attract and retain more agents and improve their performance;
●expand and deepen our property database and listings;
●continue to attract property listings by empowering agents;
●diversify and expand our value-added product and service offerings;
●continue to innovate, upgrade our technology and enhance our database, as well as attract more property listings; and attract, retain and motivate talent.