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Boqii Holding Limited American Depositary Shares, representing Class A Ordinary Shares
Q2 2021 Earnings Conference Call
11/16/2020
spk04: Ladies and gentlemen, thank you for standing by and welcome to Boche's September quarter 2020 earnings conference call. At this time, all participants are in listen-only mode. Later, we will conduct a question and answer session and instructions will follow at that time. As a reminder, we are recording today's call. If you have any objections or you may disconnect at this time. Should you need assistance, please signal a conference specialist by pressing star then zero on your telephone keypad. Now, I will turn the call over to Julia Chen, Managing Director of BlueShirt Group Asia.
spk09: Thank you, Operator, and hello, everyone. Welcome to Boqi's September quarter 2020 earnings conference call. Joining us today are Mr. Luis Lim, Chief Executive Officer, and Ms. Lisa Tang, Chief Financial Officer, Mr. Minghao Zhou, the Head of Investor Relations, and Ms. Mandy Roh, Investor Relations Manager. We released the earnings early today. The press release is available on the company's IR website. at aya.b-o-q-i-i.com, as well as for newswire services. A replay of the call will be available on our AYA website later today. Before we continue, please note that today's discussion will contain forward-looking statements made on the safe hub provision of the U.S. Private Security Litigation Reform Act of 1995. forward-looking statement involve inherent risks and uncertainties. As such, the company's actual results may be materially different from the expectation expressed today. Further information regarding these and other risks and uncertainties is included in the company's filing with the SEC. The company does not assume any obligation to update any forward-looking statement except as required under pickable law. Please note that financial metrics that we use on these calls, such as adjusted net loss, EBITDA, and EV margin, are expressed on a non-GAAP basis. Our GAAP results and the reconciliation of the GAAP to non-GAAP measurements can be found in our earnings press release. Also, please note that unless otherwise stated, all figures mentioned during the conference call are in Chinese RMB. With that, let me now turn the call over to our CEO, Ms. Liang. Ms. Liang will deliver opening remarks in Chinese, and then our IR manager, Mandy Long, will translate his remarks to English. Please go ahead, Ms. Liang.
spk00: Good morning, everyone.
spk11: Thanks, everyone, for joining our September quarter earnings conference call, which is the second quarter of fiscal year 2021. This is our first earnings call as a public company. I'm pleased to have this opportunity to share our quarterly performance and our progress since the IPO. 成功上市是波及宠物之创办以来,
spk00: This is one of the most important milestones. I would like to thank our team and all employees for their years of hard work and outstanding execution. Boqi is China's first overseas pet ecosystem platform. As you all know, compared to other developed countries, China's pet industry is in the early stages of development and still has a huge potential. According to a report by Sha Liwen, the market income of the Chinese pet industry in 2019 was 2049 billion yuan. It is expected that by 2020, the revenue will increase to 4,495 billion RMB, and the annual growth rate will reach 17%. More importantly, the Chinese pet industry, whether it is upstream or downstream, shows the characteristics of high distribution. The brand is not well-known, and users need all-round education. The level of online stores and hospitals is low. This has provided us with a great opportunity to enter the pet market. Boqi has accumulated a lot of data and information during its 12-year operation, actively breaking down industry barriers, and promoting a new seed concept. It has realized the full industry chain layout of production manufacturing, free brand development, channel product sales, and personnel training, and is based on industry innovation advantages and important cards. With the support of listed capital, we will further expand the business map to serve more users.
spk11: The successful IPO was a key milestone in the growth of the company. I would like to thank all of our employees and other team members for their years of dedication and outstanding execution to make this happen. Wochi is the first publicly traded pet-focused platform company in China. As you may know, China's pet industry is in an early stage with huge growth potential compared to other developed countries. The pet service market is also in an early stage of development. According to Frost and Sullivan, the market size of China's pet industry in 2019 was RMB 204.9 billion by revenue. It is projected to grow significantly to reach RMB 449.5 billion in 2024, which is a CAGR of 17%. More importantly, the pet market in China, both upstream and downstream, remains highly fragmented with low brand recognition, limited owner education, and a lack of integration between online and offline stores and vet clinics. This creates a great opportunity for us to develop an omni-channel, verticalized platform for all things pets in China. With 12 years of operations, 4Chi has analyzed data collected on pet owner behavior. This information enables us to remove industry barriers by promoting a new concept of pet ownership. We are developing China's leading pet ecosystem, which includes manufacturing our own brands and providing training to multiple sales channels and employees. Leveraging our industry's leading first mover position and the capital raised via the IPO, we can accelerate our expansion and provide better service for more users.
spk00: This quarter, we have achieved 70% GNV growth and 34.3% revenue growth. In this quarter, we generated 70% GMV growth and 34.3% revenue growth year over year. As a newly public company, we aspire to make wider impact in the world.
spk11: I believe that our sufficient capital and our strong execution capabilities and vision should act as catalysts for long-term growth and help us achieve even greater success.
spk00: By continuing to move towards user needs and market trends, we can bring more close and reliable products to our users. On the other hand, with the brightening of the national policy, our beehive business has also grown significantly. Beehive brands have not performed well. Many of them have achieved a double growth of GMV during this year's Double C. We have adopted a business model that selects brands and continuously digs for brands and products that are more valuable to users. As to our future growth strategy, we will first expand our health brand products and service offerings.
spk11: We will also offer better user experience and drive greater brand recognition. We will continue to adjust and upgrade categories of our own brand and integrate our supply chain. will bring to market higher quality and safer products based on user demand and market research. We will continue to grow our cross-border e-commerce business as we get more clarity on government policies. During this year's W11 Single Day Global Shopping Festival, some overseas brands doubled their GMV growth. We carefully selected the brands that are most valuable to our customers. In recent years, more local brands have been launched, some of which are well received by our users due to their perceived high value for money.
spk00: In terms of customer service, we will continue to upgrade our customer service center
spk11: so as to provide better service and professional support to drive repeat purchase.
spk00: 另外,随着私域流量的红利继续凸显,我们也会继续在小程序,抖音等新社交媒体渠道的投入,持续获取用户,拓宽用户触达,助力业务的长期发展和收入来源的多样化。 To better take advantage of our private traffic,
spk11: We will increase our investment in many programs, TikTok, and other new social media channels. This will enable us to acquire new users and expand our user reach, thus helping to drive our long-term growth and diversify our revenue sources. Last but not least, to further leverage our industry impact and integrate industry resources, we'll also seek M&A and investment targets in our industry value chain. So with that, I will now turn the call over to our CFO, Lisa Tang. Lisa will talk about the recent key business highlights and financial results. Lisa, please.
spk07: Okay.
spk08: Thank you, Louis, and thank you, everyone, for joining our first earning conference call today. As Louis just mentioned, we successfully closed our New York Stock Exchange IPO on October 2nd, raising about US$70 million in gross proceeds. We are confident that our solid cash position will enable us to rapidly execute our strategy. We got off to a great start as a newly public company, as we developed a strong physical second culture. For the three-month reporting period ending September 30th, our revenue grew 34.3% year-over-year to RMB 229.2 million. And our DMV grew 70% year-over-year. reaching RMB 563.3 million. Notably, we are committed to providing our customers with a better shopping experience on our self-operated online sales platform, 40Mall. 40Mall revenue reached 41.2% of the total, a significant increase from 29% in the same quarter last year. Thanks to our KOL matrix and private traffic, such as on TikTok and WeChat, total active buyers in the quarter increased 15% to 1.3 million. The solid revenue growth is supported by our increased number of users. Net loss for the person with IMB, 27.5 million. which is a significant improvement compared with the net worth of RMB $43.5 million in the second quarter of last year. The better borderline was due to higher revenue and better operating efficiency. In addition to our solid financial results in this quarter, we also made meaningful progress in establishing strategic partnerships with big generic e-commerce platforms and regulatory authorities This will further boost the sales and expand our influence in the pet industry. As examples, I would like to discuss two iconic strategic partnerships we recently entered. In terms of cooperation with big e-commerce platforms, we joined the Pet 100 Million Yuan Sales Club, initiated by JD. This aims to promote pet brands and generate 100 million yen of sales for us on JD in 2020. By joining this club, the products sold on our stores will have more exposure on JD. The cooperation with JD was a successful combination of e-commerce platform and professional verticalized company. It not only enables the platform traffic to reach pet users effectively, but also enables more professional pet brands to be recognized by J.D. users through the channel of Boti. In September, we formed another strategic cooperation agreement with China Animal Husbandry Group, a state-owned enterprise engaged in the manufacturing and sales of biological and medical products for animals. CAHG has worked closely with the Ministry of Agriculture of the PRC, which is the regulatory authority that issues import approval documents for veterinary drugs, pet nutrition and health-related products, and pet-stable food. Through our partnership, we can import fully branded products more quickly offering a unique solution and a great selection for parents. Over the years, CAHT has dedicated itself promoting the development of China's animal husbandry industry and improving life quality for animals by providing safe, organic, sustainable, and reliable animal products. leveraging CAHD's global industry resources in animal health fields. We intend to introduce overseas pet drugs and health products, establish industry standards, and bring more pet health products and solutions for China consumers. Now I want to move on to the drivers behind our goals. As a pet ecosystem, Booty is committed to creating value for the industry. We are convinced that the platform-based business model we have now is the only way we can lead the pet industry. But, of course, it's a road that's traveled. In China, 18% of the pet owners are the first-generation owners. They lack pet care knowledge and find it difficult to select suitable products for their pets. The traditional online shopping experience with search and price comparison cannot give pets a healthier life, nor can it give the owner a credible shopping experience. We start from retail, which is closest to users, and the provider uses with different purchase paths and experiences. At Boise, we will first set up the pet profile and record their daily lives. through interaction, Q&A, and product reviews on our community for pet parents. Users can actively interact with their pet friends, and experienced KOLs will answer their questions about pet keeping. In addition, thanks to our strong supply chain, we can provide our users with highly competitive prices. When users need to bypass products, They no longer need to search and compare prices repeatedly. They can easily choose products from both selected brands and SKUs. Moreover, with the subscription model, users can easily manage their pet's daily needs without placing similar orders repeatedly. We also influenced other pet industry players. Pet-related brands need professional vertical platforms to help the customer understand their brand features. While in precise non-patch-only traffic on generic platforms, it's of little value and expensive for brands. Burdened by the ever-increasing marketing fees, brands are limited in terms of the resources they can spend on developing products. They can rarely help improve the health of pets. This will cost the brands their core competitiveness and sustainable growth. Our users are already pet owners or planning to have pets. On top of the pricing, Borti cares more about the uniqueness and ingredients of the products and the benefits they bring to pets, which are exactly what the brands are looking for. The fast growth of Fortis' own platform and our leading category position in multiple third-party platforms have demonstrated our brand recognition among consumers. These brands recognize Fortis' value in providing targeted traffic and professional content. Based on our understanding of users' and brands' operations, We support overseas brands and emerging local brands with more efficient, cost-effective, and user-friendly marketing strategies. Sales for new brands are very encouraging this year, especially during the Single States Global Shopping Festival. It is exactly because of the journeys of pet owners and brands that enable our retail business to remain quick and sustain the growth. based on our outstanding user experience and supply chain. The Chinese pet industry is still in its infancy. Going forward, we expect to establish more partnerships with our famous platforms and large corporations. This will further enhance our value proposition and expand our footprint in this faster-growing industry, driving by ever-increasing customer demand As a leading pet ecosystem in China, we will continue to communicate with the authorities for opportunities to consolidate upstream manufacturing resources and establish industry standards. We generated strong sales during the 2020 Single-State Global Shopping Festival, which was extended from one day to 11 days this year. Our multi-patch flagship store was ranked first in the patch category on Tmall for seven continuous years. From November 1st to November 11th this year, our total DMV was RMB 244.5 million, presenting 336 brands, 100 of which were newly added. We are also glad to see a diversified offering succeeding during the shopping festival, lifting two of them double sales compared to the last year's festival. We will continue to diversify our product offerings and explore more ways to stimulate our sales in the future. In the second culture, we will deliver solid performance across our primary operations and financial metrics. Now, Minghao will go through a few financial metrics here.
spk06: Thanks, Lisa. Before I go into details about financial results, please note unless I state otherwise, all figures presented are in RMB and are for the September quarter of 2020, which is the second quarter of our fiscal 2021. All percentage changes are on a year-over-year basis unless otherwise specified. detailed analysis is contained in our earning press release, which is available on our earning release, as well as our IR website. Our total revenue increased by 34.3% to RMB 229.2 million. Growth was driven by increased revenue from Bo Chi Mo, which reached to RMB 94.4 million, up 90.8% year over year. Bo Chi Mo revenue was 41.2% of total revenue, well above the 29% of total in the same period last year. Gross profit was RMB 42.6 million, which is up 15.5% year-over-year. Our gross margin was 18.6%. As time goes on, we expect to further diversify our product and revenue stream and thus improve gross margin. Operating expenses for RMB 77.1 million, up 12.9% year-over-year, in line with our revenue growth. Please note that operating expense as percentage of revenue was 33.6%, compared to 40% in the same quarter of fiscal year 2020. The operating expense now includes fulfillment expense, sales and marketing expenses, and G&A expenses. The fulfillment expense were $29 million, 12.7 percent of revenue. This is an improvement of when compared to 14.4 percent in the same quarter of last year. The decrease as percentage of revenue demonstrated our improved operating efficiency. In this quarter, we accelerated three initiatives to reduce fulfillment expenses. First, we improved the utilization of our five warehouse across China by adjusting our inventory mix. Second, we relocated our Eastern China warehouse to streamline our supply chain system, which improved efficiency. Third, we negotiated lower service fees with third-party delivery services providers as our total delivery volume scaled up. In the future, we will continue to optimize our fulfillment network layout. We will set up one or two new warehouses to work with more offline stores as our closer-to-customer mini-warehouses. All of this is intended to provide a better customer experience with fast, well-planned delivery routes. Sales and marketing expenses were RMB 31.3 million, down 5.3% year-over-year. The decrease is mainly driven by a proportion of promotion fees of revenue dropped compared to the same period of last year, meaning that we spent less percentage revenue on customer acquisition and sales promotion. G&A expense for RMB 16.7 million of 57.7% year-over-year. The increase was primarily due to higher professional expense and in relation to the initial public offering of RMB 2.4 million. as well as higher employee salaries and benefits. EBITDA was negative 23.4 million compared with negative 30.6 million in the same quarter of last year. This led to the EBITDA margin of negative 10.2% versus negative 17.9% in the same quarter of last year, a remarkable improvement. Net loss of RMB 27.5 million significantly improved from net loss of 43.5 million in the same quarter of last year. To conclude, we are optimistic about the long-term promise of Chinese pet industry. We will continue to develop our omnichannel, verticalized platform for all things pet. We will optimize our accounting offering and other services for pet community. As the largest pet-focused platform and community in China, we can further leverage our early-mover advantage and hard-to-replicate value for pet owners, brands, and offline stores and the vet clinics. Our users can now enjoy Boqi content, products, and membership services in our ecosystem. We continue to seek quality industry partners to grow the Boqi family. We are confident in our ability to lead this industry and fully committed to creating value for both our users and shareholders. That concludes our prepared remarks. Let's now open the call for the questions. Operator, please go ahead.
spk04: We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. The first question comes from Darren of Tahi of Roth Capital. Please go ahead.
spk05: Yeah, good evening. Thanks for taking my questions. Solid results, and congratulations on your quarter and your IPO. Just a few questions, if I may. First, it looks like your Bochy Mall business grew quite nicely in the quarter. I think it was 91% in the mix, 41%, as you guys said. Can you just talk about maybe what you're doing there that's working well and kind of how you're driving the improvement and where could we see maybe that mixed number as a percentage of your overall business go in the coming quarters and months?
spk02: The first question is what is the reason behind the 91% increase in our free trade? And what is the overall future of our free trade business?
spk03: From a long-term point of view, the ratio of free trade is over 50%. In this quarter, the ratio of free trade has reached 41%. The main reason for the increase is that the company is using various channels, including MCN, including our member plan, and the way of operation of private traffic to guide more users to consume in our free trade. So, hi Darren, thank you for your question.
spk11: So in the long term, our outlook for the proportion of Bochi Mall accounting for our total revenue is over 50%. And there are a few reasons driving behind this exponential growth. Firstly, we will use our MCN channel to attract more traffic to our self-operated platform. And then secondly, we have a value-added membership service that really provides very favorable price and many other benefits to the members. And we also have our private domain traffic, which is our WeChat groups, where we interact with our users. So we use all these methods to attract people to our self-operative platform that is Boqi Mall. So in the long term, we will continue to attract more customers and more traffic to our platform by providing a wider selection of products and brands, and we will also provide a very considerate customer service to retain our customers to our platform. And on top of that, our membership system will continue to provide more benefits to our users. So in the long term, we are confident that our self-operative channel, Boqi Mall, will run for more than 50% of our total revenue.
spk05: Great. That's fantastic. Could you talk a little bit about fulfillment? It looks like the cost, that line item was a lot better year on year. You talked about the renegotiation on unit economics. I'm just curious how much bigger you have to grow in order to get more favorable unit economics on that line item as we go forward. And then also as it pertains to your sales and marketing, It looks like that channel was fairly flat, which is good to see given the growth. I'm just kind of curious on your customer acquisition cost. You talked about kind of limiting promotions in the quarter. I'm just kind of curious, what are the best channels you're seeing for customer acquisition costs? You mentioned TikTok. You talked about WeChat prior. I'm just kind of curious, is that a number that's going to be stable, declining, going up? Just trying to understand where that metric is going to move to. Thanks.
spk10: I just asked two questions. One is about our bill cost.
spk11: This year, it's decreased a little bit. Will it continue to increase as we continue to operate? Will it continue to decrease? The second part is our sales cost. Will our sales cost decrease? uh uh
spk03: As we continue to adjust to the product category and optimize the layout of warehouses all over the country, we are looking forward to a further decrease in the fee. In terms of the fee, our CAC is currently at 12.9% and has a 9% decline. We can see that If we divide it by channel, the CAC of Bochimo is significantly better than the CAC on our third-party platform. The CAC of Bochimo is only $6.3, and the CAC on the third-party platform is $10.7. And they all have a very obvious decline. So in the future, with our CAC on the Bochimo platform, So answering your questions in two parts, the first one is about a continued reduction in our overall fulfillment cost. And we regard this, this is actually a very
spk11: So we have expected the decline in our fulfillment cost because we have relocated one of our warehouse to a better place. So this kind of new deployment reduced our overall fulfillment, the total expense. And then in the future we are also optimizing our categories so that we can reduce the sales products with very high performance cost. So this will be the two reasons driving down the performance cost. So talking about the numbers in this new quarter, the performance cost accounts for around 12.7% of total revenue, down by 200 base points compared to the same period last year. So we expect this trend to continue in the future. And then secondly, talking about the customer acquisition and our sales and promotion expenses reduction, In the new quarter, the CAC, the customer acquisition cost, is around 12.9 RMB, and this represents a year-on-year decline of 9%. And looking at the different customer acquisition costs from Boqi Mall and the third-party platform, the customer acquisition cost for Boqi Mall is only 6.3 RMB, while the customer acquisition cost for third-party platform is around 10.7. So you can see that the customer acquisition cost for Boqi Mall is significantly lower than that of the third-party platform. So in the long term, as we grow the proportion of the Go Chi Mo of our total revenue, we expect this to further dilute our customer acquisition costs. And then secondly, because we are investing in new media channels like TikTok and our community that really have driven down our customer acquisition costs because it's much cheaper than promoting and using advertisement to do promotions.
spk05: Ray, and this last one for me. What was the mix in the quarter of private label versus branded products? Thanks.
spk10: Right.
spk03: So for the revenue breakdown, our private label accounts for 15% of total revenue for the quarter, and then third-party label accounts for around 85% of total. Great.
spk11: Thank you. Congrats again. Thank you.
spk04: The next question comes from Bo Pei of Oppenheimer. Please go ahead.
spk01: 管理层,大家晚上好。 我先用中文问一下,然后我自己再翻译一下英文。 首先,恭喜公司最近IPO还有这个季度非常强劲的业绩。 我有几个问题,第一个是关于这个行业的整体的竞争态势。 We have observed, including in your recruitment letter, that in general, a lot of pet-related transactions are still happening on these large e-commerce platforms. I would like to ask, in the long term, what do you think we, as a specialized pet platform, have for their advantages, and what is our name tag? And then, in terms of whether we should continue to invest in these areas, such as pet-related customer service and content-related investment. The second one is, I just saw that it is us. I don't know. OK, thanks, Benjamin, for taking my questions. I have a couple, if I may. So first, it's about the industry landscape over time. It seems the vast majority of the GMV transactions in China related to pet products nowadays still on the general big e-commerce platforms. So how do you think about the trend over time? What is our, for the dedicated pet platforms, what is our uh most and what is our advantage that uh is there anything we need to invest uh for example like content cost and sales and uh and customer services is this necessary to build our most and then and i noticed that our board she more revenue grow over 90 percent how about the gmv growth and then also related to that i noticed the growth margin decreased a little bit probably because of the promotions. Is this continuous investment necessary to drive rapid growth of the blockchain more? And then my last question is about M&A strategy. Can you just elaborate the M&A strategy going forward? How do you think about the value chain in this industry? Thank you.
spk08: Thank you, Bo Pei. I'm Lisa. I'm going to answer these questions. First of all, regarding the current status of the industry, as well as the fact that there is still a relatively large share of the platform, and then the question of whether or not they are compatible. This is how we see it from the perspective of users and the industry. One is that most of the pet users in China are actually in a stage where they need a lot of education and a lot of pet knowledge. So the traditional platform is based on the search and purchase model. There is no way for users to really find the right product for their pet. In other words, users can't get the products they need by searching. So, Boqi can use more content, knowledge, and education for users to train and establish suitable products. Secondly, from the perspective of the industry, my colleague just mentioned that the industry is currently in a very scattered stage. So from the perspective of the industrial chain, there needs to be more brands and various industrial chain dimensions. From the production of the top source to the brand side, and to the next door store, in fact, there are a lot of integrated spaces in various dimensions. So these platforms that can be integrated, in fact, large platforms, e-commerce platforms will not do it. But from the perspective of the industry, we found such an opportunity, and will try to to accelerate the integration in the industry at the nodes of the entire industry. Therefore, I believe that the deep participation in this process is also a very important way for us to accumulate Huchenghe in the industry chain. The second is that the driving force for the strong growth of our entire free market is actually a adjustment of the entire company's strategy from last year, that is, we will to the operation of our content. This content has our own community and the layout of the content of our private flow and the layout of the content of the entire pet ecotourism. Then through this different dimension and the accumulation of the content of the level, but the purpose is to accurately raise the pet population, so that we can use a current commercial model of the net profit rate to be able to bear the CAC customers to get accurate users. Thank you, Peibo, for your question.
spk11: I'll answer the first two ones. So the first question is about the competition in the industry and also our competitiveness compared to other companies in the pet industry. So we think that Boqi offers unique values to both the users in the pet industry and also for the industry players So in the first part, for users, we actually, 80% of the users of pet owners in China, they are first-time owners, so they do lack a large number, a large amount of information to raise their path, so they need to understand more before buying some products. Therefore, the traditional way of buying things on e-commerce platforms through searching and price comparison is not sufficient for them to satisfy their needs and their knowledge gap. We are offering our community, we are offering our Q&A and review column on our community And also, we are offering many reviews on our Boqi Mall. So all of this can be valuable information sources to the users. That's why we said we have a very unique value proposition to our users. And then secondly, for the industry, as our colleague mentioned in the presentation part, actually the industry as a whole is really fragmented, not only the manufacturers but also the offline stores, and there are a lot of opportunities to consolidate. And we think that generic e-commerce platforms like Alibaba and JD, they are not really interested in investing along the pet industry chain and to consolidate the resources, but we are ready to do this. And through doing this, through consolidating the resources and understanding better about user needs and the needs of brands, offline stores and manufacturers, we can really build up our entrance barrier, which can make us competitive against other companies in the pet industry. And then answering your second question about the strong growth of our self-operated channel, Guoqi Mall, you can see a very strong growth in the new quarter, 91% year-on-year. It is actually because strategically we are shifting our resources to the promotion of our self-operative platform, Boqi Mall. And we are doing this through various channels. Firstly, we are continuing to build up content in our community, in our private domain, WeChat group traffic, and also through MCN KOL matrix. And all of this, on the one hand, it can have very, very good resources for us to obtain new customers And this is at a very low customer acquisition cost. So this is kind of a strategic shift of us in the new quarter, which has really taken effect.
spk08: Okay. The total sales of GMV is 45%. Seeing the decline in the profit margin, it has something to do with the increase in the share price of free-of-charge brands. We also gave our paid members a lower purchase price. But this is related to the big strategy that the company hopes to increase the share price of free-of-charge brands. We can also see that free-of-charge brands will have a better list. and in this quarter, the number of paid users will reach 70% and will be far higher than the third-party platform. So the future will be a very important part of the company's strategy based on the entire member's marketing. Finally, to answer your fourth question about M&A, we will actively work on the top and bottom of the entire industry chain, including the production and manufacturing of the most top-end, the integration of the supply chain, I'll give this to Mandy.
spk11: So for your third question about the slight decline in our gross profit margin, it's partly because of the increased proportion of our bocce mall, because on bocce mall we offer more favorable pricing to our users, which has reduced our gross profit margin on bocce mall. And also for our prepaid members, we also offer them better pricing terms. But in the long term, we got this positive sign for us because it has been shown that on Boqi Mall, we have a higher average spending per active buyer and also the retention rate for members is also much better than non-members. And actually, the retention rate, the next year retention rate for our prepaid member is around 70% of total. So therefore, as we grow the proportion of our Boqi Mall, we believe that the long-term value brought by our members and the higher average spending per active user can improve our overall performance in the long term. And then for the fourth question on M&A targets, we have been looking for very good targets along the value chain. So from the very beginning of the value chain for the manufacturers, we are looking at factories and some companies. So for the manufacturers, we are looking at manufacturers from different kinds of fat products like supplies, food, and we are looking at all kinds of targets. And then secondly, we are also looking at offline stores and hospitals and possible ways to work with them, to partner with them better to serve our users as a whole. Do you have any further questions?
spk01: That's it. Thank you very much. That's very helpful.
spk10: Okay. Thank you.
spk04: Thank you. Seeing no more questions in the queue, let me turn the call back to Ms. Lisa for closing remarks.
spk08: Okay. Thank you, operator, and thank you all for participating on today's call and for your support. We appreciate your interest and look forward to reporting to you again next quarter on our progress. Thank you.
spk04: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
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