2014-06-13

SouFun Update

On June 6, SFUN was trading at $11.03. I posted: Why Shares of SouFun Are Sinking

The main part:
On May 28, nine real estate agencies in Hangzhou pulled all their listings from SouFun's website, and this quickly spread to other cities including Beijing. A person from an agency in Beijing said firms have been in discussion with SouFun about cutting prices since the end of the year; the Hangzhou news was these negotiations breaking out into the open.

SFUN finally gave in this week: Can SouFun Cope With China’s Property Market Slowdown?
Deutsche Bank believes not, saying that Soufun will have to make price concessions to property developers “across the board” until China’s property market firms up again. As such, analysts Vivian Hao and Alan Hellawell III lowered their price target by 31% to $11 and downgraded this stock to Hold. Here are the analysts:

Soufun announced today it will offer 40% discount on subscription fees nationwide from June to its secondary listing customers (~25% of revs), which we believe is a major downside surprise for the market apart from e-commerce competition.

We expect the recent disputes between SouFun and major regional property agencies (e.g. Hangzhou) to be settled via a major pricing concession by SouFun. It has said it will offer: 1) a 40% discount on listing fees (est. ~$80m giveaway in value), 2) free mobile inventory, and 3) financing support starting June. We expect this to be implemented across the board to avoid a massive inventory pullout and agency customer attrition until transaction volume recovers.

Shares are oversold and may close the recent gap, but they are also still in the same downtrend that began in March. This latest bad news didn't shake SFUN out of the downtrend, it sent shares down to the lower trendline.

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