D-Market Electronic Services & Trading

Ladies and gentlemen, thank you for standing by. I'm Myrto, your course co-operator. Welcome and thank you for joining the HepsiBurada Conference Call-in Live webcast to present and discuss the third quarter 2021 financial results. At this time, I would like to turn the conference over to Ms. Helene Celik-Bilek, Investor Relations Director. Ms. Celik-Bilek, you may now proceed.

Thank you, operator. Thank you for joining us today for Hepsiburada's third quarter 2021 earnings call. I'm pleased to be joined on the call today by our CEO Murat Emirda and our CFO Korhan Öz. The following discussion, including responses to your questions, reflects management views as of today's date only. We do not undertake any obligation to update or revise this information except as required by law. Certain statements made on today's call are forward-looking statements, Actual results may differ material from these forward-looking statements. The earnings release has been filed with the SEC on a form 6K and is currently available on the SEC's website and on our investor relations website. Please refer to today's earnings release as well as the risk factors described in the Safe Harbor slide of today's presentation. Today's press release, the 6K, are prospectus filed with the SEC on July 1st, 2021. and other ATC filings for information about factors which could cause our actual results to differ materially from these forward-looking statements. Also, we will reference certain non-IFRS measures during today's call. Please refer to the appendix of our supplemental slide deck as well as today's earnings release for a presentation of the most directly comparable IFRS measure as well as the relevant IFRS to non-IFRS reconciliations. As a reminder, a replay of this call will be available on the Investor Relations page of HepsiBurada's website. With that, I will now hand it over to our CEO, Murat.

Thank you, Helen, and welcome, everyone. Before we dive into the quarterly update, some of which we shared in our pre-announcement on November 12th, let me start by saying that we, the HepsiBurada team, acknowledge the concerns of the market. Given the headwinds we previously reported on, we had a challenging Q3 and fell behind our expectations in GMV and EBITDA. Today, we will share actions to address those challenges in the market. Also, we will share with you positive news on the progress we have been making. With that, before passing over to Korhan for a more detailed look at our financials, let me provide some context around the third quarter. Since our IPO, There have been strong headwinds on multiple fronts in the Turkish market, which have presented significant challenges. There are three themes that particularly stand out. Firstly, following the full lifting of COVID-19 restrictions on July 1st, mobility increased and customer behavior began changing dramatically. The change was so drastic that the quarter-on-quarter market growth slowed to its lowest third-quarter growth rate in the past four years in Turkey, according to Turkey Statistics Institute Tweet and Interbank Cash Center BKM. In response to the slowdown, we increased the customer discounts to stimulate customer demand during that period, in particular in July and August. Secondly, the competition further intensified in Turkey. as evidenced by the fundraising announcement of our main competitor following our IPO. And thirdly, there was the impact of the overall macroeconomic environment in Turkey. In particular, the exchange rate becoming more volatile since September could have affected customers' consumption decisions in various ways. In light of these macroeconomic headwinds, customer discounts and competitive pricing became more essential. In response to these headwinds, we increased spending on total customer discounts, marketing, and advertising. As a result, we continued to generate strong GMV growth despite significant headwinds. But this came at the cost of lowering our gross contribution margin and flat revenue growth. Finally, as you know, we already informed the market with a pre-announcement on November 12th prior to this call. We now want to share with you the context regarding the timing of the announcement. Our business has always shown a strong and loaded seasonality. Historically, the second half of the year is higher than the first half in terms of GMV. And within the second half, the last four months of the year generally make approximately 40% of annual GMV due to key shopping occasions such as back to school, legendary November shopping month, and New Year season. Taking this seasonality into account, we made the pre-announcement after we had full visibility on the business performances in the months of September and October. Despite these major headwinds in the third quarter, we also have positive news regarding the progress we made in multiple fronts, including as follows. Accelerating our growth drivers such as increase in customer, order frequency, merchant, and selections. strengthening our key differentiators such as NPS performance, unique services like frictional return, merchant and customer experience, scaling our new strategic assets including our wallet companion HepsiPay and our on-demand grocery delivery service HepsiExpress, and also expanding our logistics footprint. Before we move into details on business updates, please let me re-emphasize two things. Firstly, With a sharpened focus on key differentiators and drivers of sustainable GMV growth, managing customer discounts, marketing spend, and cash flow more efficiently, we will deliver our long-term value proposition. Secondly, following our IPO, the market conditions have changed, but the attractive business opportunity did not. 90% of total retail is still offline. and the remaining online 10% is expected to double its penetration within total retail by 2025, offering a sizable and timely market opportunity ahead. This keeps our equity story intact, and we remain fully committed to it. Now, I would like to share a few highlights from our financial and operational performance in the third quarter. Total number of orders in the third quarter marked an all-time quarterly high at 13.8 million. With this strong 72% order growth, this generated a 50% GMV growth in the third quarter compared to the same period of last year. Considering the strong baseline effects last year, our two-year CAGR growth rate was 84%. While increasing our active customer base, we also noted that we had successfully engaged our customers in terms of GMV per active customer across the platform, as it grew by 33% year-on-year compared to the same period last year. On the other hand, the 50% GMV growth came in more costly than we anticipated given the market headwind I briefly mentioned. In the third quarter, we gain more customer discounts in total and spend more advertising to stimulate demand and also cope with the intensified competitive environment. This is visible in the EBITDA as a percentage of GMV reaching a negative 10.2% in the third quarter compared to the same period of last year. Taking EBITDA to a negative 5.7% of GMV in the nine months cumulative period in 2021. Korhan will address our financial performance in more depth in his section. Let's move to the next slide where I would like to discuss our performance in key growth drivers. Accelerating our drivers of sustainable GMV growth is an important focus area for us. This means we aim continuously to attract more customers, drive further order frequency, and add more merchants and enrich our selection. Over the past year, we continued to progress in these drivers. Our investment in growth, brand, marketplace, and customer experience paid off given the strong momentum in our active customer base, order frequency, active merchant base, and selection. Let me now share a few data points here. Active customer base grew by 26%, reaching 10.7 million in the third quarter. Order frequency grew by 21%, reaching 4.4 in the Q3. Active merchant base grew by 87%, reaching 67,000 in the third quarter. The rise in the number of merchants facilitates a wider selection with improved availability across long-tail products and services. As a result, our total number of SKUs more than doubled by reaching 77 million at the end of the third quarter. These robust trends in our key growth drivers give us confidence for our path ahead. Let's move to the slide where I would like to highlight how we continue to develop and benefit from our key differentiators. As a household brand name in Turkey with 99% total awareness, We had welcomed 240 million sessions on a monthly average in the third quarter. In September, based on the study conducted for our company, our NPS performance marked the highest in the Turkish e-commerce market at 65%. This score shows our superior customer experience but also underlines our robust logistics capabilities as key differentiations in customer experience. Friction's return service, where we pick up returns from customer stores at their preferred schedule across the country, is unique to Hepsi Broda in this sector. With this service, we were awarded with the Golden Award at the International Business Awards in the Best User Experience category in October. With its coverage of 81 cities and 1,800 carriers, Hepsi Pay is HEPCJET is highly focused on increasing its delivery speed. In the third quarter, HEPCJET delivered 75% of 1P orders on the next day. In addition, HEPCJET expanded its city coverage for its two-man cargo handling service called HEPCJET X-Large and began offering scheduled return pickup for such oversized products as well. Offering a high-quality and reliable service in that particular segment, Hepsijet XLarge has made a significant difference in customer experience and achieved over 97% customer satisfaction score in September, according to our internal reporting. While we are encouraged by the strong progress in our growth drivers, we will certainly keep on differentiating with our best-in-class customer experience powered by our robust logistics, reaching over 190,000 square meters at this point. Another important opportunity for us to further differentiate is the merchant experience. We regard our merchants as our long-term partners. As such, we pursue a constructive approach with our value proposition, which has helped us to significantly grow the number of active merchants. I would like to share some data points that will shed light on the level of integrated offering. In the third quarter, our last mile delivery service, HepC Jet, delivered around 53% of our total marketplace parcels. This corresponds to the largest share in delivered parcels volume on a quarterly basis by HepC Jet. HepC Logistics, our fulfillment service, has increased its focus on scaling its volume from merchants on our platform. It has significant room for growth and is running its operations at our six fulfillment centers. Our advertising service has been increasing its popularity. Nearly 12,000 merchants use our sponsored ads through our advertising platform, Hepsi Ads, in the search quarter. We believe our strategic collaborations with Facebook and Google on advertising technology and solutions will contribute to the growth of the business. Moreover, we continued our merchant training to accelerate their integration onto our platform. As such, in the first nine months of 2021, around 39,000 training sessions were completed on our training portal, Hep C Academy. Now, I would like to update you on our new strategic assets, in particular HepsiPay and HepsiExpress. Let me begin with HepsiPay first. Since its debut in June 2021, HepsiPay has made strong progress reaching 2.7 million HepsiPay wallet base. As of the end of October, 2.4 billion Turkish Lira GMB passed through HepsiPay wallet. With its license to operate as an open wallet, HepsiPay aspires to evolve into best-in-class payment companion, enabling frictional experience across payments, money transfers, and other incremental fintech capabilities across online and offline worlds. Accordingly, in November, HepsiPay agreed with PaySell, which is a fintech subsidiary of Turkey's leading telecom operator Turkcell, to enable direct carrier billing capability at HepsiPay Wallet. By doing so, Turkcell customers will be able to shop at HepsiBrother without a credit or debit card. With HepsiPay, we are extremely excited about the future opportunities ahead across online and offline. Another asset we are excited about is HepsiExpress. HepsiExpress is our on-demand grocery delivery service with instant and slow delivery options. We regard HepsiExpress as a strategic asset as we believe it is well positioned to drive further order frequency and new customer acquisition for the platform. At HepsiExpress, we are focused on enhancing our customer experience, selection, and ecosystem synergies. Accordingly, we developed a new cross-service search capability. This allows customers to discover products and compare prices among different stores in a frictionless way, which is an essential part of the multi-store model. Further, Hepsa Express began accepting payments via debit cards, which enlarged its addressable audience. In addition to internal developments, HepsaExpress expanded to over 50 retailer brands and roughly 1,950 stores including regional retailers as well as national retailers such as Carrefour and Choc. And just this month, HepsaExpress made a new partnership deal with Migros, a leading national retailer. We can't wait to welcome the Migros shop on our platform moving forward. Before I finish, let me reiterate a few key areas. 90% of total retail is still offline, and that remaining online 10% is expected to double its penetration within total retail by 2025, offering a sizable and timely market opportunity. I want to wrap up here by reassuring you that with our strong customer and merchant base, our hybrid 1P and 3P model, our differentiated services for customers and merchants, our robust logistics network, our continued investment in technology and data science alongside with the talent, and our strategic assets emerging from our ecosystem such as HepsiPay, HepsiExpress, HepsiJet, and HepsiAd. We are well positioned to capture the business opportunity ahead. We believe that our equity story is intact and we remain fully committed to it. Regarding 2021, in light of current market conditions, we are forecasting a full year 2021 GMV to be around 24 billion Turkish Liras as previously disclosed. With this, I would like to thank you for listening and leave the floor to our CFO, Korhan.

Thank you, Murat. And welcome everyone. As Murat elaborated in his section, our value proposition for our customers has been instrumental in driving our growth drivers across the number of active customers with 26% growth, order frequency with 21% growth, active merchants with 87% growth, and number of SKUs with more than 100% growth. Accordingly, with a 72% yearly order growth, we generated around 50% GMV growth in the third quarter. This performance was achieved against an already strong base of last year. On a two-year compounded basis, our growth momentum continued in the third quarter at 84%. On the next slide, I would like to discuss how certain factors impacted our financial performance. There are three factors that we need to discuss in depth to better understand the dynamics affecting our revenue and gross contribution margin in the third quarter. Let me start by commenting on our commission rates. Our commission rates that we charge to our merchants on the marketplace remained at around the same level in the third quarter compared to the same period last year. Our average commission rate that we are able to charge to our merchants is in the high single digits. Another factor is the 1P-3P mix. The 13 percentage point year-on-year GMV share shift from retail to marketplace in the third quarter resulted in lower revenue. And yet, this shift was in line with the continued expansion of our merchant base and selection. Another key factor is As already discussed by Murat, the third quarter was impacted by major headwinds. Our response to this new environment was to increase total customer discounts significantly, in particular July and August. Starting from September onwards, we did gradually lower such customer discounts. And in October, we continued on generating efficiencies on our total spending with some encouraging results. However, Q4 is not the best quarter to realize the full impact on efficiencies due to existence of peak occasions such as the legendary November shopping month as well as the New Year season. Overall, these were the most instrumental factors to our performance of nearly flat revenues at around 1.7 billion TL and 4.3% gross contribution margin in the third quarter. It is worth mentioning that our gross contribution margin is not a direct reflection of the commission rate, but it reflects our marketplace commission net of customer discounts. On the next slide, I would like to discuss revenue performance further along with gross contribution performance. Before further discussing gross contribution, I would like to give some color on our revenue breakdown compared to the same quarter of last year. Revenue generated from retail operations remained flat, while marketplace revenues declined 80%, mainly due to higher customer discounts, as I have touched upon. Meanwhile, our delivery service revenue increased by 83%, driven by the rise in the number of orders and higher delivery service revenue from services provided to third parties. In the first nine months, total revenues grew by around 15% compared to the first nine months of 2020. Now at the gross contribution level, our gross contribution was 280 million TL in the third quarter. This is reflected as a 4.5 percentage point decline in gross contribution margin compared to the third quarter of last year. In the first nine months, gross contribution grew by around 11% compared to the first nine months of 2020, with a 7.1% gross contribution margin. Now let's have a look at our operating expenses in the next slide. Our net operating expenses as a percentage of GMV reached 14.5% in the third quarter, up from 8.6% a year ago. Around 5.9% point rise was mainly due to 3.9% point rise in advertising expenses as we continued to invest in our growth drivers. These advertising expenses, unfortunately, became more costly under intensified competitive environment in the third quarter. 1.3 percentage points rise in our G&A expenses due to rise in the number of full-time and outsource employees, along with the impact of annual salary rise. The impact of share-based payment expenses booked in Q3 2021 was 0.8 percentage points within the total increase. 0.7% point rise in shipping and packing expenses driven by the 72% increase in number of orders and around 22% rise in unit prices applied by our delivery partners. Let's move to EBITDA margin bridge on the next slide. As a function of aforementioned drivers, EBITDA in the third quarter was negative 659.4 million TL compared to positive 8.9 million TL in Q3 2020. This corresponds to a negative 10.2% EBITDA as a percentage of GMV in Q3 2021 and negative 5.7% EBITDA as a percentage of GMV for the nine months cumulative as of Q3 2021. The increase was driven by 4.5 percentage point decrease in gross contribution margin due to customer discounts, 3.9 percentage point rise in advertising expenses, 1.2 percentage point rise in payroll and outsource staff expenses, and 0.8 percentage point rise in other OPEX items excluding the cost of inventory sold and depreciation and amortization. These results indicate that cost of growth was higher, primarily driven by the increase in customer discounts, advertising spend, and unit cost of marketing. Finally, I would like to say a few words on our cash flow dynamics. Net cash used in operating activities increased from negative 47.8 million TL in Q3 2020 to negative 582.4 million TL in Q3 2021, which is mainly driven by the increase in net loss for the period. Free cash flow was negative 639 million TL, mainly driven by the decreasing cash flow from operating activities. And this way, mainly due to 698.8 million TL increase in our net loss for the period. We continued to operate with negative networking capital, which reached 2.1 billion TL as of Q3 2021, increasingly by 23.4 million TL in Q2 2021. CAPEX was 57 million TL in the third quarter of 2021. Our investments were mainly for the Product Development Agros Act, website and mobile platforms given our growing operations and pure purchase of property and equipment. Before I end my presentation, I would like to highlight that we feel comfortable with the liquidity we currently have and therefore we have no plans to go to the capital markets to raise any funds in the next 18 months. With this, I end our presentation. Thanks for listening. Operators, Please open the floor for questions.

Thank you. The first question comes from a line of Tyrone Cesar with Bank of America. Please go ahead.

Yes, hi, good morning or good afternoon everyone. It's Cesar from Bank of America. Thanks so much for the presentation, the call and the opportunity to ask questions. I have four questions if that's okay. The first one would really be on the competition and probably if you can explain a little bit more how does it impact the business being specific both about online and offline players. And given that Trangel capital raise was known since 2Q21, did you maybe react a little bit with a lag to this incremental competition? And that's why we're seeing this incremental spend in Q3. So that was the first question. Second question, what was your 3P tech rate in 3Q and how much was it down sequentially? Third question, you seem to have stimulated GMV growth to a much larger than expected advertising spend in the quarter. What do you think happens when you reduce advertising spend or are you planning on keeping advertising to GMV at high single-digit mark going forward? And then the fourth question relates to your comments on liquidity. and no need to raise capital in the next 18 months. Is that only valid for the next 18 months? So should I consider that the cash burn of the company could be similar to Q3 going forward for the next couple of quarters? Thank you so much.

Thank you so much for the questions, Cesar. Actually, we appreciate the opportunity to address those as well. In terms of the competition and actually how we reacted to it, I guess it is fair to say when actually Alibaba raised the fundraising after our IPO, that was an intensified competitive landscape in the market. And also, there's also a market headwind because of the market flow down in the growth rate and other macro dynamics as well. So all these combined, we needed to stimulate the customer demand to address the challenges, which means actually we heavily used customer discounts. Then we also increased the amount of advertising to ensure we also get a fair share of voice and more access to our customers. And also, finally, the unit cost of marketing also got impacted because of this intensified competitive landscape. It also actually increased the total mix in terms of cost structure. So in other words, we heavily used customer discounts to stimulate the demand in the market. We increased the amount of marketing and advertising we used, but also the unit cost of marketing and advertising also went up. This is the combination of the structure you referred in terms of the company landscape and how we reacted to it and why it was increasing the cost of marketing. Now, maybe let's shift to the second question. I guess, Koray, you can take this one.

3P take rates. Yes. Thank you, Cesar, for your question. Our take rates are the commissions that we are able to charge to our merchants. So, between Q2 and Q3, there is no significant change in our commissions that we charge to our merchants. But if your question refers to gross contribution margin, it is down by 4.3%. And as I explained, this is mainly driven by the discounts that are given to our customers during the intensive competition period. For the high advertising expense, I can say during... Well, during September, as we mentioned before, we reduced CRM spendings that are given to our customers. And we continued this reduction during October. And we see some encouraging results during October. However, Q4 is not the right period to make this assessment because it's the heavily discount period. So we will be continuing this reduction starting from next year onwards. And we believe we will see some encouraging results going forward. On the liquidity for the next 18 months, yes, in our initial plans, we see that our liquidity is sufficient enough and we don't need any liquidity for the next 18 months. And we have a plan for the next 24 months. And by the end of this year, we might need to revise those plans because of the macroeconomic environment in Turkey. However, it is not so easy to make us plan above 24 months for the time being. But for the next 24 months, we feel comfortable in terms of the liquidity.

And I guess, Tezer, we head to us, I guess, just to make sure we are not missing out any questions and answers. So you also referred to what will happen, right, if you decrease advertising, if I'm not wrong.

And in terms of like the... Yeah, so more on the stickiness of consumers, et cetera. Exactly.

So I guess this is a very fair question. Also, like Ferdinand said, we already began testing some efficient tools and tactics with the increasing muscle of our data science and marketing analytics. But also, let me remind you. In our key differentiators and strongholds, we are not just relying on marketing, as you know. All the four components of our growth drivers are growing. You saw the numbers. Customer, frequency, merchant, and selection. It is a very healthy dynamic in terms of the growth. And this has been happening. So basically, when I refer to our other areas that are supporting our growth, I want to emphasize facts like we are a household brand name, 99% total awareness. We are the only one with this strong hybrid model, 1P and 3P. We actually offer, as you saw, I don't want to replicate, but the customer and merchant differential experiences, and we can discuss in more depth in other questions. As you know, the frictional return is unique to us, and many more services for customers, and many more unique services for merchants, like we offer in a package. And then, we are, as you saw, leading in terms of NPS. which is a great, actually, asset for us, where we differentiate the experience. And of course, our nationwide robust logistics, coupled with our assets like pay, grocery on demand, EpsiExpress, EpsiJet, and advertising, and so on, we feel we have many, actually, levers to drive the growth across the platform, but not just marketing. And also, we definitely want to introduce more efficiency as we go forward.

Thank you so much. Very helpful. Thanks so much.

The next question comes from a line of Adisa Miriam with Morgan Stanley. Please go ahead.

Good afternoon, everyone. Thanks for taking my questions. It's Miriam Adisa from Morgan Stanley. Firstly, just another question on competition. So I think you mentioned that you've lowered the discounting in September and October. Is that because the market is becoming slightly less competitive or is it more you're just focusing more on profitability and getting better efficiency? If you could just comment on what you're seeing in the last couple of weeks, that would be great. And then also on competition as well, are you seeing that it's mainly just competition around marketing spend and then also discounting? But are there any other gaps that you're seeing that's emerged in terms of your proposition versus peers aside from just the discounting and high marketing spend? And then finally, if you could just comment on the customer behavior that you're seeing at the moment in terms of order frequency, and particularly the cohorts that you've acquired over COVID, how are those cohorts comparing to your prior cohorts? Thank you.

Thanks so much. Maybe I can start from the maybe last question first, which is referring to the customer behavior in terms of the order frequency, I guess, if I'm not mistaken. So basically, in terms of the The drivers of our customer dynamics, you can see both the customer numbers, active customer numbers, and the order frequency increased. And this is continuing in a healthy way. And also, you can see the GMV per customer also rising. This is actually the way we see in terms of the overall dynamics here because the GMV per customer also increased by 33%, as you saw in the numbers year over year. And also going back to the customer behavior in these dynamics right now, actually, right now, can you please scroll on? I wanna see the questions first. Yes, because you start asking about the, because I wanna make sure I get all the questions you ask. The other question you actually asked was lowering discounts is actually, are we getting better efficiency? I also wanna address this. In terms of the customer behavior, in July and August, actually we saw a very drastic slowdown, which we already mentioned back in the other early scope. And as you can see from the public data from the Interbank Card Center and Turkish Statistics Institute, there was a drastic drop in this Q3, this year, Q on Q. So basically, moving on with the seasonality, we expect that the customer behavior will get better normalized. However, given the macroeconomic headwind, also we want to be cautious about it. In the first period so far, up to this point, we can see we've been actually also unlocking a lot of efficiencies in our marketing practice, growth practice, and so on across the board, which is actually very encouraging. However, we want to also remain very cautious and realistic given these major macroeconomic headwinds, we need to closely monitor the customer behavior moving forward. And as Korhan said, Q4 is kind of a very extraordinary quarter with multiple shopping occasions and long period of campaigns, but also coupled with these macroeconomic headwinds, it's going to be a very interesting time for us to see. So far, we are monitoring very closely. And the second part you asked about actually, are you seeing any other area where you see any gap between us and competition? I guess the good news is we are seeing that we are actually leading the NPS course and we are making Significant differences in many areas, like, for instance, our expenses like Hep C Jet, like the next day delivery, our frictions return. As you know, it's unique. We can pick up your return at your door, at your previous schedule, at no additional fee across the country. No one else can do it. For Hep C Jet, X large, we are actually now offering the two-man handling cargo service. And as you saw, we are seeing, like, very strong numbers, like 97 plus percent customer satisfaction scores. In other words, actually, we are making significant progress in areas where we are differentiating from customers. These are the areas we see the actually gap between us and others where we are in our favor. And also in terms of like the HEPC pay, you saw the numbers. We are making a strong progress along with the other assets like ad and so on. So our goal actually is to make sure we remain differentiated and get more efficient and smart moving forward. As you can see, we are already taking the actions to make sure we run and manage our marketing spend, customer discounts, and cash flow more efficiently. So all this combined, we believe we are going to actually increase the gap in our favor when you look at all these parameters I described.

Great, thank you. And so just to clarify on the competition point, so is it that you're not seeing competition let up in the last couple of weeks, or you are in terms of the decision to lower the discounts?

Oh, thank you, Miriam, for reminding. Actually, the competition is still intense. I mean, we should be definitely, I guess, clear about this. The intense competitive landscape remains, as we speak, in Q4 as well. And as you can imagine, this is the quarter

where the seasonality is high.

We described how actually major role this quarter plays in the total year. Therefore, from offline and online, it is, I guess, fair to expect increased competition this quarter. But despite that, we are both delivering and trying to get more efficient, and also try to differentiate our key differentiators. So basically, we are trying to not just differentiate, also get more efficient, and increase the gap between us and competition in our favor. All these things happening at the same time, and the competition remains intensified.

Great. Thank you.

Thank you.

The next question comes from the line of Unal Tem with Goldman Sachs. Please go ahead.

Hi. Thank you very much for the presentation. So I have a couple of questions. The first one is related to the fourth quarter and how is the operating environment in fourth quarter, given that the guidance indicates only 18% year-on-year growth in the fourth quarter. And also, what is your initial thoughts on the growth and profitability as well as competitive environment into 2022? And shall we expect margins to be more close to third quarter in the next year? or you will reduce CRM expenses largely in the coming years. And my second question is also related to the first one. Do you see any slowdown due to volatile Turkish Lira environment and how it's been affecting the merchants and their pricing capability on the product they sell? Obviously, volatile Turkish Lira can affect this negatively, which might result in a slowdown due to lack of availability. And finally, my third question. My third question is related to the market share of Hepsi Broda. So, even if from the e-commerce data system in Turkey at least announced year-on-year growth numbers in first half 2021 for the e-commerce market in Turkey on a year-on-year basis, where the market grew by 75% year-on-year in first half, while Hepsi Broda's GME growth was at 60% year-on-year in the same period. We know that this is not an addressable market for HepsiBroad as it includes many other parts like sports betting, lottery, gaming, cross-borders. But do you have any insight in your market share, either year-to-date or in the first half at least, or what was the growth of the addressable market in the first half of 2021 on a year-on-year basis at least? Thank you very much.

Thank you, Cem. Actually, let me start maybe from the last question and go the other way around. In terms of market share, actually, we share your concerns in terms of lack of resources that everyone can actually leverage and use. Because, as you know, we are the only public company in Turkish market. No one has disclosed publicly their numbers. And it's also hard to get real-time access to market competition and competitive landscape in that sense. So we are kind of also facing the same challenge you described. However, we try to refer to public sources to kind of get some and extract some insights. Maybe what we can share with you is to referring to the latest trend, again, the BKM, like the Interbank Card Center's public data, which you can also access. What we actually also shared in the deck, when you look at at least the similar addressable sectors reported by BKM in terms of online card transaction volume. And if you look at those numbers from Q3 over Q2 perspective, it looks like the most relevant sectors in BKM grew only 7% Q on Q. And if you look at RGMV, again, this is not the exact apples to apples, but trying to just find an insight, as you said, If you look at RGM, VQ on Q, you see almost kind of a 10% plus 10% growth, which means in this case, looking at 7% versus our 10%, it might give us some signals regarding the Q3 trend. However, again, I'm emphasizing this. It is not a direct market share measurement, but it's a way of actually trying to understand a pulse in the markets. In terms of the other questions, how the slowdown or the volatility and the slowdown is correlated, this is actually a very tough question, because hard to understand the dynamics in the Turkish market, because it could be affecting the customers' behavior in two different ways. One could be that people actually see this time and shopping season as an opportunity, an affordability solution and opportunity for them, and they can also see e-commerce as a transparent platform for price comparison, selection, and convenience, and so they can actually increase their online behavior. This could be option one. Option two could be, seeing this volatility, they can also reduce their overall consumption. So again, these are the two extremes of the very potential trend, and we are closely monitoring what is gonna be the case for Q4. It is too early, and I'm also now going to your first question to address. It is too early to mention, but if you look at our current trading as of this month, At least we can maybe share some high-level insight with you guys to make sure you understand. So basically, yes, there's a shopping hype in this season, but there's also a lot of headwinds, as we discussed, in the market. When we see, at least so far, in the current dynamics, we can say what we tried to achieve in November in terms of our execution seemed to resonate fairly well with our customers. What we are doing, which is also publicly visible, We're very focused on affordability solutions. As you know, we did some sort of buy now, pay later solution with leading banks in Turkey, so people can purchase now and pay in January. And also, we emphasize our customer experience and convenience with unique services like Friction Return, and also emphasize others like we discussed. And also, we try to differentiate in our approach to social commerce. we introduced this viral shopping list, where actually regular people also can become authentic influencers. So this kind of dynamic seemed to resonate well based on the early high level observations we had. Even in the 11.11, actually I guess we recorded like the all time high daily orders, maybe over a half a million orders to share for you guys. This is the trend we see in terms of the first part of November, but we yet to see the big time in the month, which is the legendary Friday part of the month. So it's going to be an interesting time for us together to close the monitor, but we are seeing our execution and it seems to resonate with our customers. This is the answer to your first question. Now going to the GMV and profitability in 2022, I refer to Korhan.

Thank you, Murat. As I mentioned, we have a plan for 2020. This is the most intense period for us, and November, December is the main shopping season. So we would like to see the closure of November and December to understand if we need to make small adjustments in our plan, and we will come back to you with our guidance with our Q4 announcements. So you can expect the guidance in the next year's first quarter or end of first quarter. I would like to add one thing on the profitability. Yes, we are taking certain precautions to improve our gross contribution margin. We have done certain tests during October, but November and December is not the time. But we believe going forward, starting from Q1 onwards, we will be able to improve our gross contribution margin, which will help for our profitability. But for the guidance for the whole 2020, we will come back to you with Q4 announcements. Thank you.

Okay. Thank you very much, Murat and Kuran.

Thank you.

Thank you.

The next question comes from the line of Kilkiran Hansadeh with JP Morgan. Please go ahead.

Thank you for the presentation. I have some follow-up questions and also new questions. The first one is about your take rates. You presented a chart that shows stable take rates on a weighted average perspective. So can you please also help us to understand the change in GMV per category? I'm trying to understand whether you are also cutting the take rate per category or this is stable mainly because of a shift in the GMV. The second one is about your inventory levels. You have a low 1P retail margin in the third quarter, but there is not a substantial Turkish lira depreciation. Do you have any inventory that you may benefit on the margin side in the fourth quarter? And the third question is about the capex cycle. We don't see much increase in the capex so far. So how should we think about it, particularly in 2022? And final is about your actions to improve the growth contribution. I mean, can you please let us know about this? I mean, plan to action. So how are you planning to improve the growth contribution next year? And maybe the final question is, I really wonder the impact of the grocery on the order frequency, because we observed some sort of improvement in the order frequency, but is this even larger by the increase in grocery spending, or you are also seeing the, I mean, customer buying more on other categories as well?

Thank you, Anzadeh, for the questions. Let me start with the first one about the take rate. Yes, compared to last year's same period, our take rate means our commission rate that we are charging to our merchants does not change significantly. There has been an investment period during Q1, Q2, but those are improved and we are back to our original commission levels. On the shift in the GMB, I can say our share of marketplace is 70% and 1P is 30%. In terms of electronic sales, Last year it was 65% electronics and 35% non-electronics, and this year Q3 is 62% electronics and 38% in non-electronics. However, there has been some shift from 1p to 3p between last year and this year, around 13 percentage points. which affected our results for the shift between those categories. On the inventory level, as a starting point, I can say, yes, we have enough inventories to benefit from the price increases. We started onboarding many inventories from September onwards. That is one of the reasons that our negative net working capital could have been higher, but only improved around 30, 40 million TL for the Q3 closing. That is the reason that we purchased many inventories for the readiness for Q4. However, at the same time, we somehow paid with shorter payment terms or even we made some advance payments to secure those products to make them available for Q4. But now we will be enjoying availability of those products. In terms of CAPEX, yes, it hasn't increased significantly in 2021 because we have seen some operational efficiencies and we spent less on the property plant and equipment. However, going forward, especially for the next year, we are making a plan between 350 to 400 million Turkish lira spending on the CAPEX side. With this foreign exchange increases, we need to make a detailed plan for those purchases. However, the initial plan is something around 350 to 400 million Turkish lira. On the actions about the gross contribution margin improvement, yes, we are not happy with the gross contribution margin, and we believe we definitely need to increase the margin. So we have to, I mean, during Q3, we had to increase the customer discounts due to market dynamics, as we explained. There was an intensified competition in the market, and the market growth was slowed down, so we had to make those customer discounts. We realized that those are not sustainable, and we made the decision to sharpen our focus on our gross contribution margin, key differentiators, and drivers of sustainable GMB growth. While optimizing our customer discounts, marketing spend, and cash flow more efficiently, we believe we will be able to improve our margins going forward. Murat, would you like to take over this order frequency?

Yes, before I go there, actually, Hamzat, I want to address and actually add on to Koran's answers for two questions specifically, and then I answer to your last question. The one actually with inventory levels, I want to add on the fact that we actually were very aware of the global supply chain challenges as well. That's why we want to do this time very well prepared. And as you know, we had a model from last year during the COVID where we also successfully were able to plan and manage our inventory, as you know, in 1P. So basically, using our 1P as a strong muscle during this period of time, despite the global supply chain challenges, and also leveraging and benefiting from our long-lasting strong supply relationships, we were able to actually get well-prepared this season with our inventory and 1P. So this was just to make sure I had that color as well. The other question I want to add on is actually the gross contribution margin piece. Coroner successfully addressed the cost part and efficiency part of it. I also want to add the other side of the story. As you know, as you move forward with 3P getting stronger, this is exactly what you observe, right? Year over year, we have a stronger one, 3P now, which actually also kind of distorts the comparison. But actually, moving forward, this 3P strength will remain as is, right? It's going to be always a strong part of our platform. And as this happens, we are also expecting to continue to see more long-tail products, adding more long-term merchants coming to our platform, which will inherently, by nature, also helps with the overall mix and margin of the platform. Other two aspects I want to also emphasize is how our value proposition with customers and merchants will also help us improve our profitability moving forward. Just for the sake of time, briefly mention this. As you remember, our HEPC Jet now actually crossed 50%, right now 53% of marketplace parcels are delivered by HEPC Jet in Q3. It's gradually growing, as you know. This means, actually, now with our last mile delivery service, we are making a difference for our merchants. With HEPC Logistics, which is actually a valid position to scale moving forward, our procurement service, as you remember, is also going to help our merchants save time and money and also increase their customer experience. And also advertising, we briefly mentioned some numbers. With the recent announcements I am sure you saw with Google and Facebook, we are making like innovative ad tech tools, helping our merchants. And also with training and potentially with also other merchant financing tools, stuff like that, we are trying to make sure we become the most preferred platform for our merchants. These are eight. And also the second part of the story, which is our customers, We also try to be their ultimate choice, right? That's why we are also seeing a lot of room for that improvement as well. With our strong brand, with our unique services, like which we discussed, like patients return, next day delivery, and like the X-Large delivery and service and so on, with our ecosystem play, which I'm going to also tap on shortly. All this coming together, we also believe that our margin and profitability will improve over time. So these are actually going to be a function of multiple improvements. Now I'm going to address to your Hep C Express question. Hep C Express for us is very strategic because to your question, it improves and helps us improve both frequency and also customer growth. Because we now realize HEP-State Express is a great tool to bring on new customers with a different profile and demographics, and also triggers frequency because of the nature of the product. And as you know, it also offers instant and slotted. And now we have Migros, as I mentioned briefly in the previous section of the call, now we many of the national players like Carrefour, Shok, Migros now, and we have a lot of regional players. Now we have almost more than 50 brands. So the selection is getting larger and we aim to offer the widest selection with our service and with multiple options like Instant and Slaughtered. And also finally, we are improving our own experience like with technological and experience-wise developments on our app. All this together, I also want to give you maybe one uh kind of indication how we are seeing this business we are very overly focused on the customer experience the selection and as well as sustainability of the model that's why you will see us moving forward and onwards because this is still the early phase these years to invest in that business but moving forward you will see us more focusing on sustainability of the model as well and also we are very uh internally focused on uh actually perfect order success ratio. So this is actually a number of metrics we carefully watch and monitor, which means for us, it is the order where there is no delay, no return, and no actually cancellation because of availability. We take it very seriously because we know it's an ultimate customer experience. And right now, we are seeing, just to give you an idea, around like 60% perfect order ratio, which is very strong. So we are going to hopefully focus on this moving forward even more, and gradually increase this strong number, already strong number, ahead. Maybe this was enough answers to your questions. Please let me know if there are more.

Yeah, thank you very much, Murat Bey. Regarding the Migos onboarding, is it exclusive to HepsiBrota or they are also presenting themselves in other platforms?

Honestly, the nature of the partnership doesn't actually force any exclusivity on either side because, as you know, our value proposition is actually slightly unique. We believe we're going to grow with our retail partners together. This is our model. It's much more inclusive than other models, as you know. We are not running dark stores. We work with our retailers. We kind of see this as an incremental growth opportunity with our partners, retailer partners. Therefore, with Migros, in this example, because, yes, it is nothing like there is no exclusivity involved, but we believe because of our kind of experience we can offer on our platform, And because we are hopefully going to deliver a strong mutual incremental growth for both sides, this is going to be a kind of a sustainable long-term partnership with both sides. Because this is also an area we are working with our retail partners, not just them, but others as well. We also work with our partners, how we can improve and enhance our experience and sustainability of the model together. This is as much I can share at this point, and I will stop here. Okay, thank you very much. Thank you.

Ladies and gentlemen, there are no further questions at this time. I will now turn the conference over to CEO Mr. Murat Ermirdag for any closing comments. Thank you.

Thank you so much for everyone. Before we end the call, I want to reiterate that we acknowledge your concerns and take them very seriously. And we remain confident in our market opportunity and long-term value proposition. because we know the opportunity and the fundamentals of the business remain strong. And actually, following our IPO, while competition and near-term market conditions have become more challenging, two things have not changed. The significant long-term market opportunity in the digitalization of the Turkish market, and the other one actually is our firm belief in our business model. So we are committed to deliver on our drivers of sustainable growth, key differentiators, strategic assets that discuss and value these services for customers and merchants with a disciplined cash management, creating long-term value for our company and shareholders. We look forward to speaking with you again in the next quarter's call. Thank you all.