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Chinese real estate site falls after revenue miss, cites regulatory challenges

Pedestrian walk past a construction site in Beijing on April 1, 2015.
Wang Zhao | AFP | Getty Images
Pedestrian walk past a construction site in Beijing on April 1, 2015.

Shares of Chinese real estate site Fang Holdings shed 15 percent Monday after lowering its guidance and reporting a miss on quarterly revenue. The stock had initially fallen 11 percent on the news and took another leg lower following a downgrade at Nomura.

Fang slashed its fiscal 2016 revenue guidance to $928 million from $1.15 billion. That new figure is also well below Wall Street expectations for $1.13 billion, according to a consensus estimate from Thomson Reuters.

The Beijing-based company also posted a quarterly loss of 3 cents per share on $250 million in revenue. Analysts had expected Fang to report a loss per share of 5 cents on $293 million in revenue, according to a Thomson Reuters consensus estimate.

CEO Vincent Mo said in a statement that the past quarter "was one of the toughest quarters in Fang's history."

"Our transformation coupled with the market regulations by the government was very challenging," Mo said in a statement. "Transformation is not easy but we are determined and optimizing the operations details. The company achieved operational profitability and we are confident to turn around the company."

Nomura later assumed coverage of the company and downgraded the stock to "reduce" from "buy" and lowered its target price to $3.03 from $6.79. Overall, "the China property sector has entered a downcycle since early October, which should put pressure on property sales volumes," Nomura said in a research note.

The firm added that the company is facing difficulties in some of its new businesses and that these challenges "may continue in the next few quarters, with no clear solutions in the short term other than minimising losses."

A smaller web-based Chinese real estate services provider which also reported quarterly results on Monday, Leju Holdings, cited similar regulatory challenges in its press release. Leju CEO Geoffrey He said that the company has seen local governments resort to "aggressive tightening measures" amid "robust transaction volumes and rapidly rising home prices."

"The combination of tightening policies and close scrutiny of marketing practices had an immediate cooling effect on transaction levels and demand for marketing services, and we expect it will have a significant impact on our e-commerce and online advertising businesses in the fourth quarter," He said in a statement. "However, we do not believe that the fundamental market demand and supply structure will be affected by these policies in the long run, and we believe that after this period of market correction, Leju will be able to further distinguish its strategy and platform services to generate future growth."

As of its Friday close, Leju had a market cap of about $595 million, less than half of Fang's $1.61 billion. Both stocks have taken a beating this year. Fang shares have shed nearly 61 percent while Leju shares declined 25 percent so far this year.