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EJ- Devil is always in details 2

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currency_2 May 4, 2012 (Chinavestor) We continue to monitor financial condition of E-House Holdings (NYSE:EJ) very closely. This particular article is zooming in on revenue and earnings growth, an organic continuation of the previous article  EJ- Devil is always in details.

Net loss mainly due to goodwill impairment and increasing cost in online business



The revenue of E-House in 2011 was good compared to its past records. In the third and fourth quarter of 2011, total revenue was above $100 million, almost reaching the highest point of the past three years. The quarterly revenue data exhibits seasonality to some extent with revenues higher in the third and fourth quarter than in the first and second quarter. This is mainly because transaction volume in real estate market peaks in September, November and around Spring Festival. For this reason, we observe the growth rate of revenue and net income on a year on year basis.

Revenue showed strong growth rate in 2009, then declined in 2010 and increase slowly in 2011. The growth rate is relatively stable. In contrast, net income showed a dramatic slump in the third quarter in 2011, mainly due to the goodwill impairment loss. In 2011, E-House experienced net loss in every quarter. Taking out the effect of goodwill impairment loss, we need to examine the cost of revenue and SG&A expense to find the reason.


In the past two years, cost of revenue and SG&A expense grows faster than revenue. Put that growth rate into historical records, we find the increase rate is still in an acceptable range.

In 2011, the increase in SG&A expense mainly contributed to the advertising expense in online business and marketing expense in the launch of O2O EJU real estate e-commerce platform.

The main difference in cost of revenue between 2011 and the past years lies in the capitalization cost of a Brandlink product from Baidu, Inc. (NASDAQ:BIDU) In 2011, China Real Estate Information Corp. (NASDAQ:CRIC), the subsidiary of E-House Hold. (NYSE:EJ), signed an agreement with Inc. (NASDAQ:BIDU) that CRIC will pay BIDU RMB 180 million over three-year term, in turn get the exclusive right to sell Baidu’s real estate Brandlink products during the period. This agreement can be seen as a strengthening of marketing and sales power in online business.

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