D-Market Electronic Services & Trading

Ladies and gentlemen, thank you for standing by. I am Mina, your Coruscore operator. Welcome and thank you for joining the HepsiBurda conference call and live webcast to present and discuss the second quarter 2022 financial results. At this time, I would like to turn the conference over to Ms. Helene Cholipilek, Investor Relations Director. Ms. Cholipilek, you may now proceed.

Thanks, Oprey Secretary. Thank you for joining us today for Hexiburada's second quarter 2022 earnings call. I am pleased to be joined on the call today by our CEO Murat Demirdağ 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, and actual results may differ materially from these forward-looking statements. Please refer to today's earnings release, as well as the risk factors described in the Safe Harbor slide of today's supplemental deck. Today's press release, the 6K, our Form 20, filed with the SEC on May 2, 2022, and other SEC 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 press release for presentation of the most directly comparable IFRS measure as well as the relevant IFRS to non-IFRS reconciliation. To enhance this call, we have posted our supplemental slide deck on the financial page of our company's Investor Relations website. As a reminder, a replay of this call will also be available on our Investor Relations website. With that, I will hand it over to our CEO, Murat.

Thank you, Aylin. Welcome everyone and thank you for joining us today. Before diving into dynamics and numbers of the second quarter, let me briefly remind you of our unique ecosystem that is well beyond an e-commerce platform. We built an ecosystem that includes a well-established logistics network, fast-growing financial services, cross-border operations, and key strategic assets that serve various purposes. Our diverse ecosystem has been instrumental in our solid performance in a challenging macroeconomic environment and underlines our future potential. Without further ado, let's take a closer look at the second quarter in more detail. Next slide. To provide a better understanding of the macro picture, let's take a look at some of the key indicators during the second quarter. consumer confidence index was at an all-time low level with 63 in June. Although it is still early to say, there are some signs of potential recovery with the consumer index rising to 72 in August. The annual inflation rate reached 79% by the end of June. We experienced 7%, 3%, and 5% levels in April, May, and June, respectively. And yet, the growth rate of inflation slowed down in the second quarter compared to the first quarter. Please note that the cumulative inflation during the past three years in Turkey surpassed 100% by the end of February, and this has triggered the inflation accounting requirement as per IFRS. So, we will discuss our financial performance as per the relevant standards of IFRS called IAS 29 in the upcoming slides. Next slide, please. It is important to understand the impact of inflation on consumer behavior as well as the basket patterns. One of the key changes in the consumer behavior is that customers tend to switch to lower segment brands in their purchase decisions. They also favor budget-friendly choices with reliable customer experience. Another important change in terms of the basket patterns is that the basket size in value does not grow at the rate of inflation. We believe that there are several reasons for this. First, the pressure on consumer spending triggers changes in shopping decisions, such as substitution for more affordable products or partial holdback in purchase decisions for certain categories. Second, we observe that the factors including, but not limited to, inventory carryover and competitive market dynamics affect the decision of sellers on the platform, on to what extent the inflation impact will be reflected. Last but not least, generally speaking, the pass-through effect of inflation is usually more imminent in categories such as grocery, food, and FMCG, which are actually limited in our GMV. Within this operating environment, Our capabilities ranging from 1P, 3P, Hubbit business model to affordability solutions and more have played a significant role in meeting the changing dynamics as we continued our order growth. Now, have a brief look at our H1 performance. Next slide, please. If we had reported on an unadjusted for inflation basis as previously, we would have reported 69% GMV growth and 72% revenue growth, resulting in a 8.3% gross contribution margin in the first half of the year. When adjusted for inflation, our GMV and revenue growth in H1 2022 were 3% and 5% respectively. In the same period, gross contribution margin was 4.3%. 29 million orders, which correspond to 31% growth, fueled by the continued momentum in the active customers and order frequency, was instrumental in our H1 performance. Now, let's have a look at the second quarter performance in more detail. In the second quarter, on an unadjusted for inflation basis, we had 57% GMV growth and 63% revenue growth. When adjusted for inflation, our GMV and revenue declined by 10% and 6% respectively compared to the second quarter of last year. While we continue to deliver solid order growth at 8% year-on-year basis in Q2, the revenue decline in 1P and 3P operations during this period was mainly due to the limited pass-through effect of inflation to our average order value. Gross contribution margin was 5% in Q2 with a 2.8 percentage point decline compared to the same quarter of last year, but with a 1.7 percentage point improvement compared to the first quarter of 2022. We believe this quarter-on-quarter improvement underpins the progress in our path to profitability efforts. Our CFO, Korhan, will touch upon the underlying reasons in more detail soon. Another key highlight in Q2 2022 is the fact that we had positive free cash flow with 185 million Turkish Liras. Let's move on to the next slide to look into our operational metrics. We are glad to see that our four growth drivers continued their healthy rise on a yearly basis. Our active customer base grew by 18% up to 11.7 million while frequency grew by 23% up to 5.2% on a year-on-year basis. This has been achieved with a lower marketing spending and higher marketing efficiency. Our active merchant base increased to nearly 89,000 this quarter. Our comprehensive merchant value proposition and our progress in enhancing merchant experience contributed to this solid increase. This has contributed to strengthening our product offering, where the number of SKUs more than doubled to 130 million as of June 30, 2022. Last but not least, we maintained our leadership in MPS in the sector, thanks to our excellent customer experience on the back of our technology, logistics capabilities, and our wide range of affordability solutions. While we are pleased to see our leadership in MPS, we continue to innovate for customers with breakthrough technology solutions and services. Let me now share two recent examples on the next slide. Post-second quarter, we achieved two important milestones in line with our customer-centric approach. In July, we marked a first in the market by introducing Türkiye's first new generation smart physical store, HepsiBurada Smart Store, solidifying our thought leadership in retail innovation. In Hepziburada Smart Store, all shopping related transactions are carried out using artificial intelligence, image processing, and digital weight sensor technologies for an easy and convenient shopping experience. Second, we launched our paid subscription service, Hepziburada Premium, replacing our earlier loyalty cloud. Hepziburada Premium subscribers have access to a range of benefits. We are glad to see the promising customer interest in this program as the number of members has exceeded 200,000 by mid-September. Now, I would like to switch gears and give an update on our nationwide logistics network, which is an essential enabler for our customer and merchant value propositions. Our last mile delivery service, HepsiJet, served through a nationwide logistics footprint and delivered 57% of our orders from the marketplace operations. Regarding the next day delivery performance, HepsiJet delivered 83% of the orders on the next day in the second quarter. With HepsiJet X-Large, HepsiJet's delivery of oversized items continued its fast penetrations. HepsiJet XLarge carried around 75% of oversize items in our 1P operations. We are proud to have registered a new patent for HepsiJet multi-vehicle route optimization technology, unlocking further efficiencies in our operations. On the fulfillment as a service, HepsiLogistics continued to scale its operations by adding 183 clients to its portfolio during the quarter, providing fulfillment services to 513 clients in total. On the next slide, let's take a deeper dive on our progress with respect to other strategic assets serving our customers as well as our merchants. Our ad tech solutions under HepsiAd were used by more than 10,000 merchants in Q2 2022. HepsiAd has been expanding its portfolio of services to include sponsored ads as of most recently. While the inbound arm of Hepsi Global continues to expand our selection to some 4.4 million, our cross-border outbound operations in Azerbaijan have gone live since the first quarter. Our primary focus in Azerbaijan has remained on advancing user experience and expanding our assortment during the second quarter. Our online grocery business, Hepsi Express, which has been rebranded as Hepsi Broda Market, continued to expand its ecosystem throughout the quarter to reach 105 retailers. Hepsi Broda Market's perfect order ratio performance was 79% in the second quarter, up by 5 percentage points compared to the first quarter of 2022. Our flight ticket service, Hepsi Broda Seyahat, enables sales of roughly 37,000 tickets in Q2 from 27,000 a quarter ago. In short, we will continue to diligently operate our strategic assets to help fuel further monetization and incremental growth for the overall ecosystem while consistently improving cost-effective business models. On the next slide, I would like to give an update on our financial services. Within our long-term strategy of becoming a leading fintech player across online and offline channels in Turkey, we are determined to continue to expand our payments and affordability solutions. Marking its first year of launch, HepsiPay Wallet reached 8 million users as of the end of June. Around 39% of GMV passed through the wallet. Launched in early Q1 2022, our Buy Now Pay Later solution is embedded within HepsiPay Payment Gateway and is currently available for purchases from our direct sales operations. Using Buy Now Pay Later, approximately 500,000 customers were issued a shopping limit and over 100,000 of those customers used their limits as of the end of August 2022. Regarding the solutions like Buy Now, Pay Later, we continue to diligently manage credit risks while maintaining our focus on growth optimization. Before I leave the floor to Korhan, let me say a few words on our guidance for the full year. Please note that at time of transition to inflation accounting, to provide more context on comparability, we refer to our guidance for GMV growth and EBITDA as a percentage of GMV on an unadjusted for inflation basis. First, based on our half-year performance, we are raising our GMV growth guidance from around 50% to around 60% for the full year 2022 compared to 2021. Second, while we continue to have the liquidity to fund our operations to help provide additional visibility on this year's performance, we will begin providing guidance for our full-year EBITDA in 2022. Accordingly, we expect to deliver an EBITDA as a percentage of GMV within the range of negative 2.5% to negative 3%, which was around negative 6.5% last year. With this, I now hand over to our CFO, Korhan, to give more color on our financial performance. Thank you all for listening.

Thank you, Murat, and welcome everyone. As already mentioned, inflation accounting, in other words, the implementation of IAS 29 standard, has become mandatory for all IFRS reporting companies in Turkey starting from this quarter onwards. Murat has mentioned the key financial highlights for both the inflation-adjusted figures as well as the unadjusted ones to ease the understanding of restated financials. On this slide, I would like to give an overview of what inflation accounting requires and how its implementation impacts our financials. In IAS 29 Requires, our comparative financial statements are presented in terms of the measuring unit current as at June 30, 2022. For restatement, the monthly price indexes published by the Turkish Statistical Institute are used, which are disclosed in our press release. Monetary items are not restated, while non-monetary items are restated from the date of acquisition. In addition, we index all our reported non-IFRS measures, such as GMV and EBITDA. As shown on this slide, the gross contribution margin from the sale of an illustrative item could turn from a positive 3% down to a negative 1.5% when restated as per IAS 29. Only if a good is purchased and sold within the same calendar month, then this transaction has no impact on gross contribution margin under the implementation of IAS 29. I will elaborate more on this one in the upcoming slides. In Q2, on an unadjusted for inflation basis, we generated 9.2 billion TL GMV, corresponding to 57% year-on-year growth. Adjusted for inflation, the GMV became 9.6 billion TL with a 10% decline compared to Q2 of last year. Let me briefly address why there is some left-flow decline on a year-on-year basis this quarter. GMV is a function of the growth in number of orders and average order value. We recorded continued order growth during the second quarter at 8% compared to a year ago. This order growth came through the growth in number of customers and the continued rise in the order frequency. Meanwhile, the growth in average order value was lower than the level of inflation in the second quarter. Actually, In our business model, for the reasons Murat has already mentioned, average order value and inflation rate are not fully correlated due to limited pass-through impact of inflation. On the next slide, I would like to discuss our revenue performance. On an unadjusted for inflation basis, our revenue grew by 63% in Q2 2022. compared to the second quarter of last year. The 6% revenue decline on an adjusted for inflation basis was mainly due to decline in revenue from 1P and 3P with similar underlying reasons discussed in GMB growth dynamics. Additionally, the decline in delivery service revenue was mainly due to decrease in the number of parcels delivered as well as the limited pass-through effect of inflation on unit delivery service charges. Meanwhile, other revenue which mainly consists of HEPC ads and HEPC logistic revenue streams grew by approximately 54%. Now I would like to discuss our gross contribution performance in the next slide. Our inflation adjusted gross contribution margin was 5% in the second quarter of 2022 and 8.3% unadjusted for inflation. This difference was mainly driven by higher inflation adjustment on the cost of goods sold. Securing inventory became critical in order to ensure product availability, particularly in electronic goods in the inflationary environment. As a result, we secured a high level of inventory and had higher inventory turnover days in Q2 where the average order value growth was realized below the inflation rate, per the reasons explained previously, resulting in 3.3 percentage point decline in inflation-adjusted gross contribution margin. Now I would like to provide insight regarding on year-on-year comparison. On an inflation-adjusted basis, Gross contribution margin in Q2 declined 2.8 percentage points compared to the second quarter of last year, mainly due to decline in revenue, relatively higher monthly inflation rates, and comparatively higher inventory days. On the other hand, compared to the first quarter of 2022, our gross contribution margin improved by 1.3 percentage points in the second quarter within the context of slowdown in the monthly inflation rates and with our increased focus on better inventory management. This performance is an indication of our focus on path to profitability. Next slide, please. Our inflation-adjusted net operating expenses as a percentage of GMB was at 11.1% in this quarter, improved from 11.6% a year ago and 12% in the first quarter of 2022. 0.5% point improvement in net operating expenses as a percentage of GND this quarter was mainly attributable to 1.3% point decline in advertising expenses and 1.1% point decrease in shipping and packing expenses against 1.9% point rise in GNA expenses. The decline in advertising expenses was a result of saving achieved by enhanced marketing efficiency, including sharpened focus on retention and engagement across the customer lifecycle, as well as the enhanced return on marketing investment in relevant channels while remaining competitive. The decrease in shipping and packing expenses was on the back of a decline in the number of parcels delivered, and the limited pass-through effect of inflation on unit delivery service charges. The rise in our G&A expenses is a result of several factors, including from the annual salary rate and the incremental talent onboarding, including the organizational development for strategic assets. Let's move to the EBITDA margin bridge on the next slide. On an unadjusted for inflation basis, EBITDA as a percentage of GMV improved by 0.5 percentage point compared to the second quarter of last year and 1 percentage point compared to the first quarter of 2022, in line with our focus on path to profitability. On an adjusted for inflation basis, while the EBITDA as a percentage of GMV declined 2.4 percentage points compared to the second quarter last year, we observed an encouraging quarter-on-quarter progress with 2.1 percentage point improvements. The 2.1 percentage point improvement from the previous quarter was mainly attributable to the improvements in our gross contribution margin as well as operating expenses, while 2.4 percentage point decline on year-on comparison was driven by the decline in gross contribution margin and higher G&A expenses with the reasons I have already mentioned above. Next, I would like to say a few words on our cash flow dynamics. We generated a positive free cash flow of 185 million TL in the second quarter, around 2 billion TL up from negative 1.8 billion TL in the first quarter. Thanks to the positive cash generation from our operating activities, with 397 million TL. Let me briefly walk you through the reasons behind the free cash flow dynamics from the year-on-year and quarter-on-quarter perspectives. From the year-on-year perspective, I would like to shed some light on the operating cash flow in the first place. The key difference between two periods was the inflationary environment that has required access to inventory for continued product availability. Therefore, we secured a higher level of inventory and, if when necessary, we used either advanced or shorter payment terms. Coupled with 212 million TL CapEx, we were able to achieve positive free cash flow with 187 million TL in Q2 2022. However, the amount of cash generated was lower than the last years due to the continued inventory purchase to secure product availability in the inflationary environment. From the quarter-on-quarter perspective, I would like to remind you the reason behind the negative operating cash performance in the first quarter of 2022. Generally, we purchase a high level of inventory during Q4 each year due to peak shopping season in Turkey. Usually, the payments of a part of such inventory purchases, as well as of other service payables, fall into the first quarter of the following calendar year. As a result, even after CAPEX included, we were able to achieve an improvement of 2 billion TL in free cash flow from previous quarters. Next slide, please. Our continued progress towards our petro-profitability includes both our monetization and efficiency efforts. In terms of monetization, we are focused on gross contribution margin and strengthen our selection in non-electronics where profitability is relatively higher. With affordability solutions becoming more relevant for consumers, we continue to expand our affordability solutions, set and further develop monetization of FinTech services. In order to support growth of our ecosystem and monetize strategic assets, we expanded our ad services with new capabilities as well as scale fulfillment services consistently. With our new loyalty program, we aim to gain more value from our customers. In terms of disciplined cost management, and operational excellence, we set some efficiency measures on marketing spending and executing consistently with analysis on retention and engagement in customer lifecycle and segment-based acquisition. We also maintain discipline in G&A, ensuring efficiencies in organization, process, and systems. Optimization in unit economics of strategic assets and patented route in last-mile delivery also will help unlock further efficiency. Moreover, we control our cash position with focus on better inventory management and effective capex prioritization. As we deliver on these executional priorities and focus on our disciplined cash and cost management approach, we take more tangible steps toward our path to profitability. Next slide, please. As I end my presentation, I would like to leave you with a few highlights on our quarter-on-quarter momentum. Overall, our second quarter results on an inflation-adjusted basis showed improvement on several lines, including gross contribution margin, advertising expenses, and hence EBITDA when compared to the first quarter of this year. This progress was achieved in the macroeconomic environment with continued challenges. Looking ahead, acknowledging the challenges and uncertainties, we are confident to increase our GMB growth guidance from 50% to around 60% on an unadjusted for inflation basis. To provide further visibility on our PEPTO profitability, We would like to share an EBITDA guidance for the full year, which we expect to end at a range between negative 2.5% to negative 3% on an unadjusted for inflation basis. We believe we are on the track with our path to profitability and continue to execute with disciplined cash and cost management. With this, I end our presentation. Thank you for listening. Operator, please open the floor for questions.

The first question is from the line of Tyrone Cesar with Bank of America. Please go ahead.

Hi, good afternoon or good morning, everyone. Thanks for the call and the opportunity to ask questions. I have two questions, if that's okay. The first one relates to the free cash flow that you're showing and obviously improving on a sequential basis. But if we compare it to this is a business which has obviously high seasonality in working capital. So if we compare the free cash flow to Q2 2021, actually there was quite a significant decrease. Can you please talk about it? And also, I think in the past you used to mention in some of your releases that you don't intend to or don't need to raise capital in the next 18 months. Does this statement still stand? Thank you so much.

Sure. Thank you, Cesar, for the question. Please note that in Turkish online retail, we have a strong seasonality with highs and lows such as legendary November in the last quarter. Accordingly, this seasonality affects our Q4 historically and it triggers negative operating cash flow in Q1 per the reasons as I explained during my presentation. We buy during Q4 and some part of those payments fall in Q1 and we generate a negative cash operating cash. Also, we have 1P-3P hybrid business model, where 1P gives us a unique competitive advantage with operational flexibility in the market. And on the other hand, our inventory management is an integral part of our 1P operations and has a direct impact on our cash performance, depending on the amount of inventory purchased, the inventory turnover date, the speed of inventory turnover date, and the payment terms to suppliers, whether those are increasing or decreasing. In light of these factors, we continuously seek ways to improve our cash flow performance so that we eventually turn into a positive operational cash generating model for the full year. For this 18-month question, let me first clarify that our plan not to raise capital remains valid. We believe that we have the liquidity to fund our operations. We had previously provided 18 months window on our liquidity position to provide visibility under a very volatile environment, including foreign exchange fluctuations, raising inflation, as well as challenges in the regulatory framework. But now we have further understanding of this environment. those volatility factors and we are ready to provide a deeper visibility on our path to profitability by introducing our EBITDA guidance. So we expect to improve our EBITDA performance from negative 6.5% last year to a range of negative 2.5 to 3% this year on an unadjusted basis. I hope this is okay on your side, Cesar.

Yes, thank you so much. That was very helpful. Thank you.

The next question comes from the line of Holbrook Look with Morgan Stanley. Please go ahead.

Yeah, thanks for giving me the opportunity to ask a couple of questions. Just my first, sorry if we're rehashing what you said on the call, but on slide 22, you've got the minus 6.2% EBITDA as a percent of GMV adjusted. And then you've got it 2.7% unadjusted. Can you just kind of go through a bridge a little bit in the delta between the two? And what would your EBITDA guidance be on an adjusted basis for the full year? Thanks.

Well, unfortunately, we are not in a position to give an adjusted basis EBITDA guidance for the year end. because there are various factors affecting our inflation accounting. Even today, we don't know what the inflation is going to be by the year end, and there are so many factors that we have to take into consideration while calculating the inflation-adjusted figures. And if we consider about the 6.2% versus 2.7%, This is a kind of technical calculation on our side. Once we buy the inventories, we multiply those inventories with an index until the date of sales. This increases the cost of goods sold significantly in line with the inflation versus the sales realized in the respective month. So on an adjusted basis, As Murat mentioned, we were not able to increase our average order values in line with the inflation, so the sales prices were not increased in line with the cost of goods sold increases. That resulted in a decrease in the cost of goods sold and consequently the gross contribution margin. One of the main effects of this is the age of the inventories. If you buy and sell the inventories within the same calendar month, there is no impact. However, if you buy certain amount of inventories and sell in the following month, then the inflation accounting reduces your gross contribution margin. That is the main reason of this difference.

Okay, that's clear. And just a second question is on your GMV guidance for the full year, I guess it would imply real terms kind of 10% decline year on year at the 60% odd mark. And I've seen you've seen order growth slow to up 8% in the last quarter. So just trying to get a handle on that. Is this competitive dynamics? Is this the macro situation? What are you seeing from your side?

Let me take this question. Look, it's Murat speaking. Hi. So I guess first thing to remember maybe we are operating in an inflation environment and we are remaining focused on our execution according to our plans by applying a disciplined cost and cash management within our path to profitability. So that is important to remind everyone. And within that context, when you now refer this, let me start with the orders first. When you look at the order growth, which is resilient, has been resilient against all these challenges in the market, actually has a couple drivers behind it. Let me remind you of some of those, which would actually, I assume, help understand our current order growth performance. One actually is to mention first an external factor, which is, of course, the macroeconomic environment. So there is definitely a continuous pressure on consumer spending in the current environment, and this affects the consumer behaviors. So consumers... In terms of their behavior, we observe they tend to shift towards more affordable products. And also we observe they are applying potential holdback on certain categories. That is actually one major consumer behavior aspect of it. If you look at our internal drivers, maybe one to mention is the fact that within our discipline, cost and cash management, we are and we have been optimizing our service model for Hep C Burada Market, previously known as Hep C Express, as you remember. And in that sense, those optimizations actually also resulted in impact on the contribution to orders number from Hep C Burada Market to overall orders numbers. But again, it was a conscious choice that we've been applying to optimize the business model in line with our discipline cash and cost management. And of course, ensuring a better customer experience, which you also saw in the results with improved perfect order ratio. The other one from our internal drivers worth mentioning actually is the fact that we've been also optimizing constantly our marketing execution and our focus on customer lifecycle management, which means you will see, and you are seeing it already, we've been actually emphasizing our focus on retention and engagement. And also in the meantime, with respect to acquisition, we go very segment specific, such as women and youth segments, et cetera. So we really try to make sure under this environment where the cost of marketing actually is substantially high, we should be also very efficient in terms of marketing channels, which eventually, of course, affect those numbers which I described. Let me now switch the gears to GMV because you also referred in your question to GMV growth versus inflation. Now that I clarified, I guess, partially on the order side, let me take the next side of the GMV dynamics. The GMV, actually, if you look at the numbers in revenue and GMV with respect to adjusted and unadjusted, I guess one of the key drivers, maybe the major driver, is the gap between the AOV, average order value, and the inflation rate. This is important to underline for everyone because in our business model, our AOV and the inflation rate are not fully correlated. There are some reasons for it, but let me summarize very quickly the key reasons for that. One actually is definitely, as we discussed, the consumer spending. There is a pressure on that, and they've been changing their behavior, which triggers this shift towards affordable products as well as partial holdbacks on certain categories. So that is one which is much more about consumer behavior. The other one actually is much more about an observation we have with respect to sellers. Sellers are also actually getting affected by these dynamics because they cannot create about how much they can reflect on their business in terms of the inflation impact. So therefore, to what extent to apply that impact is actually affected by the inventory carryover as well as competitive dynamics on the standard side. So that is another actually factor we also observe. The final one, last but not least, also it's, I guess, very similar to other markets as well. The pass-through effect of inflation is usually more imminent in categories such as grocery or food or FMCG. And as you know, these are actually a very limited portion of our GMB. So in high level, that is why we see and we observe the AOV and inflation rate, in our bidding model at least, are not fully correlated. But with that said, as a side note maybe, a hypothesis could be, assuming the inflation growth will slow down over the years, over time, the lag between selling prices and inflation narrowed down over time. But again, this is a hypothesis that at this point we have yet to see, observe, and monitor. And maybe also I can shed some light on the current training as well. Maybe now that we are speaking about these dynamics in a very high level. As you know, we've been operating in the current period with our continuous focus on our execution, and we continue to surprise and delight our customers and merchants with our experience and innovation. And also based on the initial feedback so far from our customers and merchants, we believe our diligent execution seems to resonate with them at this point. And also we observe this initial positive feedback hopefully will also be reflected on the growth drivers of our business, including active customers, frequency, active merchants, and selection expansion, as well as hopefully on the GMV side. That's, I think, what we can at least share based on the initial impressions we have as of this quarter. Let me stop here. Hopefully, I was able to address some of your questions. Luke, thank you.

Yeah, perfect. Thank you very much. That's all.

The next question comes from the line of Miss Kilikiran Hajonde with JP Morgan. Please go ahead.

Thank you very much. I have three questions. The first question is about the pre-delivery. So what was the share of pre-delivery in total orders, I mean, so far year-to-date? And compared to 2021, how has this changed? And you are quite excited about this Hexagrata premium. And I wonder how much are you charging for the loyalty fee here? And the second question is about the GMB guidance. What is the average inflation have you considered on GMB guidance? And can you provide a bit more detail on the guidance per quarter for the third quarter and the fourth quarter? And the final question is about the delivery cost and the cost inflation in last mile on the 3P. So how quickly are you able to pass the cost inflation in last mile? And I couldn't really understand this decline in shipping expenses, which was around 35% in real terms, very substantial. But you didn't lose any orders according to your key KPIs. So can you please elaborate it a little bit more? Thank you.

Thank you, Hanzadeh. Actually, maybe because it's very related to the previous question of Lux, let me start with the question on more detail on guidance or forward-looking expectations for Q3 and Q4. And I hand over to actually to Korhan. Okay, now at this point, let me just briefly, I guess I briefly covered what is the current training momentum at this point. And again, our initial impression looks like our execution and our focus on experience and all disciplines diligent execution seems to have resonated well with our customers and merchants. But of course, this is still our early observation with respect to our current trading periods. But on top, I guess maybe it's also worth mentioning for next quarter, because you mentioned that for the last quarter. And I guess like Korhan said, there is always a high seasonality in the Turkish retail, online retail, and Q4 is actually the peak season for all of us. And that's always good to remember. And historically, this is the case. At least provided there are no new changes or developments on the consumer or macroeconomic environment, we can expect, I guess, fairly the same high seasonality will continue for the upcoming quarter. That is what we can share. And I guess also on top, we can at least shared this much, we are looking forward to the next quarter to execute our plans accordingly. And because we are also actively learning from year to date learnings and key takeaways in this environment. And we're going to definitely apply all those learnings and best practices and key takeaways to the upcoming quarters. And of course, maybe one final note before I hand over to Korhan. kind of our discipline we have in our execution with respect to cost and cash management and our clarity on purpose in terms of path to profitability will be always in our minds when we execute the next quarter as well. So let me just stop here and hand over to Korhan to take the other questions.

Hanzadeh, on the free delivery share in total orders, I can give you this number. Out of the total GMV, around 65 to 67 percent of GMV pass-through for 3P, and for the 3P cargo costs, those are fully covered either by the customer or by the merchant. So our market says cargo costs are fully covered. The remaining 30 to 35 percent 1P cargo cost is covered partially by us. And the remaining portion, if it's above a certain threshold, we cover the cost. If it's below a certain coverage, then the customer pays for it.

So what is the current charge for the Hexapremium membership? So that is the one, because you still offer pre-delivery for all Rodeo Premium members, right?

Maybe it's respective to Rodeo Premium. Let me maybe share some insights and then please add on it if you see any areas I forgot.

Basically, Hepstable Premium is a very brand new and fresh program, as you know, we introduced recently. And we, of course, are very pleased by the promising demand and initial reaction by the customers. And actually in that Hepzibah Premium paid subscription model, that number actually we share here on the presentation as was almost about 200,000 subscribers. So it's still relatively in the early phase for us. With that said, that is actually a program which is currently available at 9.9 TL per month. This is the current price. Of course, this is the current price I'm referring to, which is also publicly visible. And also in that program, we have multiple benefits that we offer to our customers, which are actually not just unique to cargo benefits, but also some other benefits as well. And actually, in overall, our vision for this program to become actually a key differentiation for us, and to ensure also we're referring to our focused on retention and engagement, we believe Hepsgorda Premium will eventually play an integral role to drive further engagement and loyalty in our customer base. And actually we can see that also looking at the global examples and best practices as well. So this is our vision from this program. Let me actually stop here and hand over back to you because I now shared the... Yeah, I will give only two numbers, Murat.

On our platform, if the order is above 100 TR, then the cargo is free. With the premium launch, we decreased this 25 Turkish lira for the premium customers. But the gap is very insignificant for the time being. Thank you.

Okay, thank you very much. Can I please ask a final question, if possible?

It's about this new e-commerce law. Antalya, please remind us if we forgot to address any questions, because we just forgot to remind us.

I am trying to understand the positive impact from the new e-commerce law. So when do you expect to see the first positive sign from declining ad spending that's forced by the new load now? And is it possible for you to share a rough calculation ad spending as persons of GMB in 23 as a cap? Thank you.

I guess maybe it's fair to say first it is way too early to assess the impact at this point as some provisions of the new regulatory framework should get effective as of next year onwards. So it's still early phase. But I guess our initial impression and initial review on the law makes us anticipate that this bill eventually over time might create a more favorable operating environment for all players. The reason behind actually is the fact that the regulators actually attributed to certain design principles, which also we believe seem to resonate with universal standards. The one we actually understand from the perspective is that they try to ensure a more transparent, healthy, and fair market environment for all players, which makes sense for us, of course, obviously. The second, actually, is they definitely want to prevent any monopolistic practice in the market to secure the long-term benefits of all stakeholders, including customers, SMBs, suppliers, and society in general, which makes sense. for us as well, and thus, of course, but not least, they also want to establish an investor-friendly market environment for both domestic and international investors with a much transparent regulatory framework with well-defined rules and regulations. And I think, again, that is, on us, makes sense. So taking those principles, actually, we believe, in general, we anticipate a much more favorable environment, operating environment for all players. But again, the impact is early to assess. I guess that's what we can actually mention at this point. In terms of calculations, I mean, this is maybe early to specify a certain number, but we are actually actively working on this analysis, what those thresholds, which were introduced in the regulatory framework, means to us, and moving forward in the new year. But again, let me remind you, this is actually a separate side note. We've been already actively operating with a very conscious improvement in marketing efficiency and spending. So we believe our unique customer experience, which is, as you know, we are the market in terms of MPS, and also our kind of well-trained marketing engine actually will become much more handy in the new world, and we are getting already ready for it.

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 management for any closing comments. Thank you.

Thank you so much for all listening. And actually, we are looking forward to the next quarter's earnings goal.