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MOGU Inc. American Depositary Shares (each representing 25 Class A Ordinary Shares)
Q1 2021 Earnings Conference Call
8/25/2020
spk12: Ladies and gentlemen, thank you for standing by and welcome to MoGU first quarter fiscal year 2021 earnings call. At this time, all participants are in a listen-only mode. After the speaker's presentations, there will be a question and answer session. To ask a question during this time, simply press star and the number one on your telephone keypad. If at any time you require assistance, please press star zero. I would now like to turn the call over to today's presenter, René Van Gestein. Please go ahead.
spk06: Thank you, Michelle. Hello, everyone, and thank you for joining us today. Mogu's earnings release was distributed earlier today and is available on the IR website at ir.mogu-inc.com, as well as on the Business Wire services. Before we begin, I'd like to remind you that this conference call contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended and as defined in the U.S. Private Securities Litigation Reform Act of 1995.
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spk06: The forward-looking statements are based upon management's current expectations and the current market and operating conditions and relate to events that involve known or unknown risks, uncertainties or other factors, all of which are difficult to predict and many of which are beyond the company's control, which may cause the company's actual results, performance or achievements to differ materially from those in the forward-looking statements. Further information regarding these and other risks, uncertainties, or factors is included in the company's filings with the U.S. Securities and Exchange Commission. The company does not undertake any obligation to update any forward-looking statement as a result of new information, future events, or otherwise, except as required under applicable law. On the call today from Mogu are Mr. Sha Chen-Chi, Chairman and CEO, Mr. Raymond Wang, Chief Strategy Officer, and Ms. Hui-Ping Eli Wang, Financial Controller. Mr. Chen will review the business operations and company highlights, followed by Mr. Wang, who will discuss the financials. They will all be available to take your questions during the Q&A session that will follow. Now it is my pleasure to introduce our Chairman and CEO, Mr. Chen. Please go ahead.
spk04: The GDP of the live broadcasts has increased by 72.4% in this quarter, reaching 22.66 billion yuan. The balance of the live broadcast business has gradually increased to the leadership of our business. The GDP of the live broadcasts has contributed 72.6% of the total GDP of this quarter. The live broadcast business has become the core driving force of our company's development. Over the past four years, we have been achieving significant results in the in-depth layout of live broadcast business. In terms of live broadcast eco-construction, supply chain eco-construction, etc.,
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spk03: Hello, everyone. This is Shark. Thank you for joining us on the earnings conference call for the first quarter of fiscal year 2021 today. In the past quarter, we continued to execute our live video broadcasting, or LBB, e-commerce strategy. and our LVB business regained strong growth momentum. GMV from the LVB business increased by 72.4% year over year to 2.3 billion RMB during this quarter. The LVB business is an increasingly important business driver that accounted for 72.6% of the total GMV this quarter. Our dedicated effort on LVB business over the past four years has achieved remarkable results and we have accumulated significant amount of experience in building our ecosystem of KOLs and supply chain partners.
spk04: Over the past two years, MowuJet's business has undergone a major transformation. We have long established the strategy of building MowuJet's future participatory competitiveness with live broadcasts as the core. MowuJet's live broadcasts have unique user experience that can spread the value of participatory users. Therefore, the live broadcast business has maintained a very high increase. The ratio of GNV is also getting higher and higher. In the past two years, Mogul's business has gone through a major transformation.
spk03: We have established our KOL-driven strategy with the goal of making Mogulife a truly differentiated experience. Unique experience creates differentiated value for our customers. As a result, the LVB business has regained growth momentum this quarter and became the main contributor to our total GMV. Compared with the traditional e-commerce model, the participation of KOLs leads to a lower platform takeaway, which has also been reflected in our company's year-over-year change on revenue and cost. We believe that as the LVB business continues to grow and LVB GMB increases as a percentage of the total GMB, the company will resume revenue growth.
spk04: Our live purchase users continue to maintain a steady growth. During the past 12 months, the number of live purchase users has increased by 37%, to 3.7 million people. The number of users who purchase live broadcasts remains the same. The number of users who watch live broadcasts every day is 71 minutes. On average, they spend 21 days a month watching live broadcasts. This is because they are highly involved in the platform. Their 30-day resale rate reached 91%. This reflects the deep connection between users and streamers. This connection surpasses the relationship between buyers and sellers. Users are eager to express their love for streamers Our LBB buyers continue to grow steadily. In the 12 months and June 30, 2020, the number of active buyers
spk03: increased by 37% year-over-year to 3.7 million, and these users maintain consistently high stickiness. For example, active buyers watch LVV for an average of 71 minutes per day and on average of 21 days a month, and their high participation in the platform also contributes to a 30-day repurchase rate of 91%, which reflects an unusual connection between users and KOLs that goes beyond the simple buyer-seller relationship. Users are also keen to express their love to KOLs and recommend KOLs to their friends around them. We are committed to further develop the sharing mechanism for our users for our user acquisition. By designing incentive schemes and gameplay tools, we can help more KOLs gather their fans to attract new fans through social network and a platform, our platform can acquire customers at a lower cost.
spk04: In terms of the construction of the live broadcast, we have formed a very good live broadcast hatching and training mechanism. In our live broadcast management system, the number of new live broadcasts is huge and has a lot of liquidity, which is the next stage of live broadcast training. We have discovered that live broadcasts that have the required quality and live broadcast performance are good, and we are focusing on hatching and training live broadcasts. In addition, through continuous events and competitions to attract new anchors. For example, this year, our supermodel plan, new start plan, and debut anchor, and so on. Among the new anchors that we have signed up for, a large number of potential new anchors are selected to support and train them. For the anchors in various levels of the system, we continue to develop new marketing tools and new tools through continuous supply and demand, and supply and demand support on operation. In terms of the host incubation, we have developed a comprehensive Mogul live host incubation and empowerment mechanism. There are many new hosts joining a Mogul platform on a daily basis, and we can selectively
spk03: work with the KOLs that have greater potential. In addition, we also discover new KOLs by continuously launching events and competitions, such as this year's Super Mogul project, Kinti project, and Debut host. For KOLs at various stages in our incubation system, we match them with appropriate supply chain partners, empower them with innovative marketing tools, and support them to grow with our strong operational know-how. The incubation system has proved to be very effective. The number of established KOLs on the platform has increased by 55% year-over-year.
spk04: On the construction of the supply chain, we are continuing to expand our own advantages. Live streaming has brought a huge change to many industrial chains in China. This point is clear to everyone. More and more traditional industry-based merchants are turning into live suppliers to speed up the pace of their own network. They benefit from the rapid development of the channel of live streaming. In the first half of the year, we have introduced a number of all-terrain supply chain merchants. By cutting off the middle part of the chain, live streaming sales are provided to the streamers with high-quality raw materials. On the other hand, we are also continuing to promote cooperation with brands. In the first half of the year, we have introduced nearly 1,000 brand merchants, and jointly formed a differentiated supply chain of Mushroom Street.
spk03: Digital adoption is the key driver behind the supply chain evolution in the first half of 2020. More and more traditional manufacturers have joined the live e-commerce space, and they have thrived due to the strong sector growth momentum. We onboarded many supply chain partners, bypassing middlemen and providing transparent pricing to eventually empower our KOLs to generate strong sales. In addition, we have also worked with nearly 1,000 brand merchants to further enrich KOL's product offerings.
spk04: We continue to strive to improve the supply chain of our sponsors, and continue to improve the efficiency of human-to-human matchmaking. We are also gradually improving the background of Linglang's product selection, so that our sponsors, supply factories, brands, suppliers, platform managers, and many other participants can work together to improve the efficiency of the entire system and strengthen the control and capability of the supply chain market.
spk03: We continue to empower our KOLs with supply chain and improve the efficiency of matchmaking between our KOLs and products. Our LingLang system is built to empower KOLs, supply chain partners, brand curators, distributors, and MCN companies to participate in a more collaborative fashion. Mogu, therefore, has greater control over the suppliers.
spk04: In the future, the market scale of live broadcasts will still maintain a high-speed growth trend. In the future, the e-commerce LVB market will maintain strong growth momentum. More C2M factories,
spk03: SMEs, internet native brands will conduct their sales online through LVB. More and more customers will embrace this immersive shopping experience. We are very excited about the future of live video broadcasting e-commerce in China and our long-term growth prospect. Thank you. Thank you, Shark. This is Raymond, Chief Strategy Officer of Mogul. I would like to go through, thank you for joining our conference call today. Now I'll walk you through our first quarter fiscal year 2021 financials. We believe year over year comparison is the best way to review our performance. And that's otherwise stated. All percentage changes I'm going to give you will be on that basis. Let's review the financials first. Our GMB for the first quarter of fiscal year 2021 was RMB 3.1 billion. which decreased by 25.2% year over year. GMV for the first 12 months ended June 2020 was RMB 16 billion, which decreased by 8.6% year over year. Our focus has been growing the GMV from live video broadcasting, which has increased by 72.4% during the same period to RMB 2.3 billion. our live video broadcasting business continues to increase as a percentage of the total GMB and is accounted for 72.6% for the fourth quarter. Active buyers for the LVB business in the 12 months ended June 30, 2020 grew by 37% to 3.7 million. So let's now turn to revenues. During this quarter, total revenue came in at RMB 132.5 million a decrease of 46.8%. That was primarily due to 34.1% decrease in the commission revenue and 73.1% decrease in the marketing services revenue. The commission revenue decreased to RMB 85.3 million, primarily due to the remaining impact of the COVID-19 pandemic, all e-commerce logistics and demand for apparel, as well as the restructuring of our business towards the LVB business. Commission revenue from the LVB business grew significantly and was in line with the continued strong growth in the LVB associated GMB. Marketing services revenue, which is mainly generated from our marketplace business unit, decreased by 73.1% to RMB 24 million, which is primarily due to the remaining impact of COVID-19 pandemic and also the restructuring of our business mix towards the LVB business. Now I will walk you through our major costs and expenses. Cost of revenue decreased by 19.5% to RMB 48.8 million from RMB 60.6 million in the same period of fiscal year 2020. That was primarily due to a decrease in the cost associated with the decrease online direct sales. Sales and marketing expense decreased by 57.3% to RMB 61.9 million from RMB 145 million in the same period of fiscal year 2020. That was primarily due to optimized spending on user acquisition and branding expenses. R&D expenses decreased by 48.4% to RMB 29 million from RMB 56.2 million in the same period of fiscal year 2020, primarily as a result of hack-out optimization. G&A expense decreased by 31.2% to RMB $23.5 million from RMB $34.2 million in the same period of fiscal year 2020, primarily due to a decrease of share-based compensation expenses. Amortization of intangible assets increased by 9.3% to RMB $70.5 million for RMB $64.5 million in the same period of fiscal year 2020. That was due to the amortization of the broadcasting license acquired in September 2019. Loss of operations was RMB 94.9 million compared with RMB 105.3 million in the same period of fiscal year 2020. Net loss attributable to Mogul's ordinary shareholders was RMB 88.9 million. Adjusted net loss was RMB 14.4 million Adjusted EBITDA was negative RMB 17.4 million. As of June 30, 2020, the company had cash and cash equivalent, restricted cash and short-term investment of RMB 1.05 billion. In summary, the strong Mogul Live user engagement is the best endorsement of our KOL-driven strategy. With the continuing rollout of our LBB business, we are seeing more KOLs joining our platform and more fashion supply chain partners onboarding our platform. Our transition into a KOL-driven and LBB-first platform is gradually paying off with strong growth momentum. As you have seen in this quarter, we have adopted a very disciplined approach in terms of sales marketing and user acquisition. We will continue to be disciplined and deliver quality growth going forward. So with that, We would like to open the call for Q&A. Operator?
spk12: At this time, if anybody has a question, please press star 1 on your telephone keypad. Again, that would be star 1 on your telephone keypad. We'll wait just a moment to compile a Q&A roster.
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spk12: Again, if anybody would like to ask a question, please press star one on your telephone keypad. Your first question comes from Charlie Chen from China Renaissance. Your line is open.
spk13: Hello, I'm Charlie. I'd like to ask a question in Chinese. We can see that the growth of KOL is quite good. I'd like to ask, in the process of training KOL, Is there a model or an effective way to turn a new KOL into a KOL that the company thinks has reached a certain scale? Is there such a successful formula? And then the next question is, what kind of scale do you think this mature KOL will reach in the future?
spk03: Oh, maybe I will translate the question first. Okay. So the question is that it seems that the has been growing quite rapidly in this quarter. So Charlie is wondering if we have any proven formula or any proven tactics that we can incubate these KOLs. Thank you, Charlie.
spk04: I have a question. Let me answer it separately. I don't think there is a specific mode for a single person. This is similar to the entertainment industry. If you have a specific mode, you can push a certain actor from a small actor to a big star. In fact, this does not exist. But our advantage is that we are a platform. We have a more ideal principle of a large number. So as long as we have enough new people, Then we do have some ways to improve the probability of each level of this anchor to grow up. For example, in the early days of the anchor, their growth may be most needed. In fact, it is some skills, that is, sales skills. How to face the fans, how to display the goods. When it comes to this middle section, what they need most is actually goods. Then we have been talking about the supply chain and the match of goods. Then when it comes to this, When it comes to leading broadcasters, what they need is to compete with other leading broadcasters. So we need to organize some resources that they can't organize on their own. For example, products that are particularly attractive in terms of price or scarce products in the entire market. So for each group of broadcasters, we have a very clear operation method. For a certain individual, we mainly put them in this big pool to exercise.
spk03: So to answer your question, no, we don't have a very specific proven formula in terms of incubating KOLs. I think we can draw a reference analogy to like maybe just entertainment. It's very difficult to produce or to incubate a movie star with a proven formula. We don't have the formula, and no one has that. But Mogul is a platform. Well, the advantage of being a platform is that we have massive amount of KOLs joining our platform on databases. So on this platform, we can make sure that all the KOLs, they have the upward mobility, so they can always move up. And we provide them with a lot of training and supply chain empowerment. So when they first join the platform, I think the most difficult part for them is that they need to acquire a certain type of sales skill so that they know how to sell products. And secondly, they need to be matched with relevant and appropriate products so they can generate sales. And then third, I think when they grow to be more top tier KOLs on our platform, they need to compete with KOLs from all different platforms over internet. So by them, the platform needs to provide them more unique products, more valuable products, like what we have tried before, the discounted brand products. That is some kind of resources that they themselves wouldn't be able to mobilize. So these are the key attributes we can empower the KOLs.
spk04: So the second question is about the KOLs. The total sales volume is actually more closely related to the number of streamers above this scale. I just actually talked about us This year is relatively similar to last year. The growth of streamers above this scale is already about 55%. We are on the whole platform for our streamers to do this division management. We divided them into ten levels. What we generally mean by streamers above this scale refers to this in our platform. Yes, so the second question is about established host and how do we see the scale and magnitude going forward. We have delivered 55% year-over-year growth for the established host.
spk03: So because we have a very specific tiering system for all the KROs on our platform, so from K1 to K10, we have divided our KROs by 10 different tiers. So we have deployed a lot of different strategies so that each tier of the KROs can benefit from very specific incubation program targeted for them. And we believe that going forward, we will be able to deliver the same level of growth in terms of the number of the SELF hosts. OK. OK. Operator, we can move to next question.
spk12: OK. If anybody else has a question, please press star 1 on your telephone keypad. Your next question comes from Sabrina Hu from Giffords. Your line is open.
spk15: Good evening, management. Thanks, management, for taking my question. I'm asking on behalf of Thomas Chong. My question is that considering that Taobao has excellent supply chain management and a great user base, so Yin and Kuaishou has more KOS. Could management comment on what the competitiveness of Morgan's live video broadcast business and is there any overlap on the customers? Thank you.
spk04: This is also a question that we need to answer in our daily operations. From the perspective of Mushroom, live streaming is just a form of sales. Although we are the founders of this model, I think of it as a new sales model. From the nature of our business, it has not changed much from the nature of our business. to provide help in terms of consumer decision-making, mainly through our K2 to provide help in terms of consumer decision-making, and at the same time to sell this product. This has always been our core value. As you just mentioned, Taobao does have the largest number of customers, but we put the most effort into the match between the streamer and the supply chain. To a certain extent, it's also because we don't have as many customers as the live streamer and the public service industry. So our platform can spend more energy on their matching and connection. So our live streamer will grow on the platform and get more services and support from the platform. This is also a very important reason why the live streamer of Mogu Street itself has a very high loyalty. And then for Douyin, I think they are basically an entertainment platform. Consumers Consumers will still have a low awareness of a platform. When an entertainment platform has a large number of users, it can naturally produce sales through some of the functions of this e-commerce. I think this is no problem. But it is difficult to become a mainstream consumer's awareness and consumer behavior on the platform. From the first day, Mogu Street is a very clear place for consumers, and it is a place for consumer fashion and consumer goods. Maybe let me just quickly translate the answer for the rest of the audience. So yes, we do very closely monitor all the other platforms that provide the same service.
spk03: But I think our core value is really about our KOLs providing fashion shopping decisions, help customers to make these fashion shopping decisions. And we can sell the clothes throughout this decision-making process. As you mentioned, I think Taobao apparently has a very big supply chain foundation. And because we are a smaller platform, so apparently we can actually do more in-depth matchmaking between the KOLs and the supply chain partners. So that's why our KOLs are actually more grateful on our platform, and they're actually more loyal to our platform as well. Speaking of Douyin and Kuaishou, I think these two platforms, there's no problem with them trying to monetize the audience through that video broadcasting e-commerce. But I think fundamentally, they are more like entertainment platform instead of a shopping platform. And our customers come to Mogul with the mindset that this is a shopping place. So this mindset is a very, very important asset of ours. And I believe this mindset is also our key entry barrier when it comes to competition with other entertainment platforms. OK. Operator, we can take the next question.
spk12: OK. If anybody else would like to ask a question, please press star 1 on your telephone keypad. Your next question comes from Lucky Lau from AJ Asset Management. Your line is open.
spk05: Hello, everyone. I have two questions for you. The first one is that our LVB looks very fast. In the past, the performance of the head of the board was also very good. So, can you give us a prediction of the growth of LVB in the next two or three years, and maybe the goal? OK.
spk03: So maybe I'll just quickly translate the two questions here. So number one is about the growth prospect of LVB. Apparently it has delivered a strong growth over the last quarter, and what's our plan going forward? The other question is more about the customer acquisition strategy we have, and what's the, I guess, the key, what was the outlook of the customer acquisition, and also what percentage we should look at for the customers from WeChat. Lucky, is that right?
spk05: Correct. Thanks.
spk03: Okay, sure. So maybe I will talk about the LVB first. So I think it's very important to note that our previous quarter, our LVB only grew at, I think, roughly 50%. That was because of the COVID-19 situation. And apparently in the Q2, our growth rate actually picked up a lot, not just because I think COVID is partially behind us. We are seeing very strong recovery from Chinese, from consumption in general. But also because we have more dedicated efforts in terms of supply chain empowerment, we help our KOL to resume to get back to work in the normal situation as soon as possible. So I think in Q2 we have done a lot of work in terms of helping the KOLs. And this will be our driver for the LVB business going forward. Supply chain empowerment is highly correlated with the with the supply chain empowerment we provide. Going forward, we wouldn't be able to give very specific guidance, but we believe that there are two things we can provide. Number one is the overall market for LVB is very, very big. As we can see that more and more customers are embracing this new immersive form of sales, and people are generally very, very interested in trying out video brokers and e-commerce. Number two, there are actually more supply chain partners willing to adopt this form thanks to the digital adoption in China. So I think these two points added up together were very positive on the outlook for the LVB market. And number two is about this. I think you're referring to the June 18th performance, right? I think, of course, I think Q2 is actually not a particularly good season for a power sector. But I think we are doing fine in the second quarter. And the whole customer acquisition strategy have actually more diversified tactics. Lucky, do you mind putting yourself on mute?
spk05: It seems that we're hearing a lot of background noise.
spk03: Okay, so the second question is about the customer acquisition strategy. I think Tencent is one of our followers, and Tencent is another one. So going forward, customer acquisition strategy, and for the WeChat menu program, that takes up probably more than one third of our customer's variety. I will continue to build more gameplay tools and marketing tools to acquire customers. Operator, we can move to our next question.
spk12: If anybody has a question, please press star 1 on your telephone keypad. Again, that would be star 1 on your telephone keypad.
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spk14: Hey Tex, can someone else get a turn?
spk12: Your next question comes from Kroika Chen from China Renaissance. Your line is open.
spk02: Hello, hi. Hi, this is Veronica from China Renaissance. My question is regarding to the Alec for the second quarter this year. Well, since the third quarter this year, usually it's a low season within the year. So what activity or event should we anticipate in the third quarter? And how's the plan for W11 in the fourth quarter this year? Well, let me answer my own question. I mainly want to ask about our outlook for the second half of the year. Because the third quarter is usually our business, or let's say, Thank you for the question. You are right. In general, the three seasons are relatively light. Especially in the fashion category, especially in the summer, the cost of clothing is low, and the overall consumption will be weaker.
spk04: So for the third season, we are focusing more on the clothing category. With this opportunity, we are also promoting the expansion of the category. So for the third season, we will have more of the clothing category, such as sales activities, brand discount specials, and countermeasures. For example, Recently, we have been doing some fur coats and cotton clothes sales, which is quite good. So the three seasons are mainly a sales perspective. To balance the eggs through the expansion category Then the three seasons are usually in our annual operations. In terms of controlling costs, I will invest more in one season. To adjust the better rhythm of the team to welcome the arrival of some forgotten Q4.
spk03: Okay. As you know, Q3 is actually usually a low season for the apparel sector because people usually don't have very strong appetite when it comes to fashion shopping. And the ASP is probably lower than the other quarters. And this quarter specifically, we are more focused on expanding our categories. And so outside of apparel, we will actually focus more on other categories that we that is non-fashion related. For example, we actually probably sell snacks, branded products, or sometimes we even sell off-season products like down jackets for the winter. We actually sell them in Q2 and Q3. So these are a few tactics we use in the Q3 to mitigate the seasonality. And the Q3 is also a quarter that we emphasize on the cost control. So we want to repace our team to be more prepared to embrace the Q4 this year.
spk02: Thank you, Mr. Wang. I have one more small question.
spk04: Go ahead. You mentioned about the quarter-finals.
spk02: Yes.
spk04: In the quarter-finals, of course, first of all, we forgot about it. And it's also the sales season for the entire e-commerce industry. We have to do what we have to do. In addition, most of our business is a live broadcast business, so the fourth quarter has a more important meaning for us, which is to use a relatively high sales volume and value to further stimulate our streamers and our supply chain and stimulate their cooperation. So from the beginning of September, we will actively hold offline product meetings and streamers. So going into Q4, apparently the Q4, the ASP is going to be higher. The total GMB is going to be much higher, too.
spk03: So we have, so going into September, we will actually arrange a lot of the trade fairs between the KOLs and supply chain partners. We're going to use the magnitude of Q4 GMB to mobilize more KOLs and to work with more supply chain partners so that they can generate greater sales. The partnership they form on the platform will remain, will stay there. And that's going to help the mobile platform to step up and to improve the magnitude of our total business.
spk02: net loss, the question is non-GAAP, this part also has a lot of expansion. I would like to ask how we will look at the margin in the next few quarters, and if we can expect a break-even this year. Then I will translate it myself. Well, in this quarter, we can see we did a good job in cost control, and our non-GAAP net loss has narrowed. So how should we look at the margin in the following quarters? And should we anticipate the break-even point within this year? Thank you.
spk03: Yeah, so I think going to the financials, right, so apparently you can see that we have adopted a very disciplined approach in the Q2 this year. And our costs and expenses have significantly shrank. This is because we want to be more focused. We want to be more focused and more discreet and prudent when it comes to customer acquisition strategy. So I think going forward, we wouldn't be able to give a very precise date of breakeven. Of course, breakeven is always our goal, but we wouldn't be able to give a very specific date or guidance on which quarter or which year we're going to breakeven. But as you can see that while we're working towards that, I think you can see that we have achieved very significant efficiency in terms of the internal operations, and all the relevant expenses have come down. So I think that should be, we should be on the right track.
spk02: Okay, thanks, Sharky and Raymond.
spk03: Thank you.
spk12: If anybody else has a question, please press star 1 on your telephone keypad. I have no further questions at this time. I turn the call back over to the presenters for closing remarks.
spk06: Thank you, Michel. This concludes our call tonight. Thank you all for joining us. Should you have any questions or need additional information, please do not hesitate to reach out. Good night.
spk12: Thank you, everyone. This will conclude today's conference call. You may now disconnect.
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