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MOGU Inc. American Depositary Shares (each representing 25 Class A Ordinary Shares)
Q1 2022 Earnings Conference Call
8/27/2021
spk05: Ladies and gentlemen, thank you for standing by. And welcome to the MoGU first quarter of fiscal year 2022 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one on your telephone. If you require any further assistance, please press star zero. Thank you. Now I would like to hand the conference over to your speaker today, Ms. Vivian Wang. Thank you. Please go ahead.
spk02: Thank you. Hello, everyone, and thank you for joining us today. Mogul's earnings release was distributed earlier today and is available on the IR website at irmogul-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 Mitigation Reform Act of 1995. These 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 of 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 statement, Further information regarding this 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 for Mogul are Mr. Shao-Cheng Chi, Chairman and CEO, and Ms. Feng Chi, Financial Controller, Mr. Chen will review the business operations and company highlights, followed by Ms. Feng, who will discuss financials. They will all be available to take your questions during the Q&A section. Now, it is my pleasure to introduce our chairman and CEO, Mr. Chen. Please go ahead.
spk03: Hello, everyone. Thank you for attending the first quarter of the 2022 Chinese New Year's call meeting.
spk02: Hello, everyone. Thank you for joining us on our first quarter of fiscal year 2022 earnings conference call today. In 2021, we have completed the transformation of our business.
spk03: We have actually become a live-streaming e-commerce company. In the past quarter, our live-streaming business has continued to grow. This quarter, the GNV of live-streaming has increased by 14.7% to 26 billion yuan.
spk02: During the fiscal year 2021, we successfully completed the transformation of our business and have essentially become a pure-play live video broadcasting e-commerce company, which I'll refer to as LVB, moving forward. During the past quarter, our live e-commerce business continued to maintain its steady growth. The GMV from LVB increased by 19.7% year-over-year to RMB 2.6 billion, contributing to 19.8% of the total GMV during the period.
spk03: In the future, we will continue to rebuild and upgrade the platform supply chain. On the one hand, we will review the quality of the platform goods with higher requirements, and gradually eliminate the products and businesses that do not meet the requirements, in order to improve the quality of our entire platform. At the same time, we will more closely integrate the consumption habits and trends of young people. By expanding the product category and collaborating with relevant supply chains, we will provide more high-quality new products. In terms of broadcasting, we will continue to use a more efficient and fashionable short-wave format to replicate our live broadcasts by attracting users with better short videos to maintain a higher flow rate and up quality.
spk02: As we look ahead, we will continue to enhance the supply chains on our platform. On one hand, we'll further improve the overall quality of our platform by only offering products that have a higher standard for quality control and gradually replace the products and merchants that fall below the requirements. On the other hand, we will continue to cater to the consumption transfer by the younger customers by offering more options of newly launched fashion brands through expanding our product categories and cooperation with more suppliers. For our LVB hosts, we will continue to empower them through a more effective and fashionable short video format and maintain our high user retention rate in Apple by leveraging more high-quality short videos to attract more users to our platform.
spk03: On July 26th last month, we completed the acquisition of Hangzhou Reisa Technology Co., Ltd. with 59.62% of its equity. Resa Technology is a private service company that provides a war-like, individualized, and fully operational service. Its customers cover many industries, such as clothing, shoes, education, mothers, health care, food, makeup, and skin care. Among them, there are many well-known brands such as Li Ning, Zara, Kaishu's Story, Beiqing, and Yili. In the short two years, its revenue has increased by 13.4 times.
spk02: On July 26, we completed the acquisition of Hangzhou Rayshard Technology Co., Ltd., which I will refer to as Rayshard Technology. Mogu beneficially owns a 59.62% equity interest in Rayshard Technology. Rayshard Technology is committed to providing one-stop and customized services of full-domain operations for brands from a wide variety of industries, ranging from clothing, shoes and bags, education, maternal and infant health, food, as well as cosmetics and skincare. Its customers include various well-known brands such as NiLing, Zara, Taishu Story, Pigeon, and Ailee. Its revenue has increased by 13.4 times in the recent two years. And Mogul's acquisition of research technology is of strategic significance.
spk03: Since the invention of live e-commerce in 2016, we have gone through many years of accumulation and gradual improvement. We have established a relatively complete live ecosystem, which includes trading systems, customer systems, financial systems, etc., which can support brands and supply chain partner systems. As a platform-based enterprise, Mogu Street has helped many traditional brands, factories, and supply chains to complete the transformation from offline to online, from freight e-commerce to live e-commerce.
spk02: After establishing our live e-commerce business in 2016, it took our experience and constant improvements to reach our current state. We now operate a well-established LVB e-commerce ecosystem that empowers our brands and supplier partners through the integration of our transaction system, customer service systems, and financial systems. As an e-commerce platform, Mogul has helped many traditional brands, manufacturers, and supply chains to successfully execute their transformation from offline to online operations, and from traditional e-commerce to live e-commerce models. Thanks to our innovative and forward-looking ecosystem, we're now in a mature capacity to effectively service our brand partners.
spk03: This acquisition of Risa Technology is the expansion and full use of our long-established B-Zone service capability, helping those brands that want to embrace online but lack technology and operating experience to find solutions and achieve growth under the help of Risa. In addition, Mopu Street can also access more brands through Risa Technology, enriching our live environment and better service users.
spk02: The acquisition of Rayshard technology embodies the expansion and full utilization of the 2B service capabilities that we have accumulated over the years. Rayshard technology will focus on helping those brands that hope to operate online technology and operational experience to find solutions to achieve value and growth. In addition, Mogul will also reach more brands through Rayshard technology to further enrich our LWB ecosystem. for delivering better services to our partners. Based on our unrelenting confidence in our future business growth prospects and the recognition of our long-term investment value, the Board of Directors has authorized a new share repurchase program. Our company is authorized to repurchase our ADS with an aggregate value of up to US$10 million during the 12-month period, starting from the date of the announcement of the share repurchase program. With that, I will turn the call to Fengqi to go over the financial details.
spk01: Okay. Thank you, Shaq. Thank you, Vivian. Thanks again to everyone for joining our conference call today. I will now walk you through our first quarter of fiscal year 2022 financial. We believe year-on-year comparisons are the best way to review our performance. Therefore, unless otherwise stated, all percentage change I'm going to mention will be on that basis. Let's review the financials first. Our GME for the first quarter of fiscal year 2022 was INV 2,864 million, a decrease of 8.2% year over year. Our strategic focus has been on growing the GME from live video broadcasting which has increased by 14.7% year-over-year to only 2,600 million. LBB associated GMB for the first quarter of fiscal year 2022 accounted for 19.8% of the total GMB. During the quarter, Total revenues decreased by 30.6% to IMB 92 million from IMB 132.5 million during the same quarter of fiscal year 2021. Commission revenues decreased by 23.7% to IMB 65.1 million from IMB 85.3 million in the same period of fiscal year 2021. primarily attributable to the lower GME from the heightened competitive environment. Marketing services revenues, which is mainly generated from our marketplace business unit, decreased by 64% to RMB 8.6 million from RMB 24 million in the same period of fiscal year 2021. The decrease was mainly due to the restructuring of the company's business towards an LVB-focused model, which involves more business partners, including LVB hosts and their agencies, who take on portions of our marketing and promotion function. Financing solutions revenues decreased by 5.1% to RMB 11.3 million. from IMB 12 million in the same period of fiscal year 2021, mainly due to the lower services fees on the loan to users. I will now walk you through our major costs and expenses. Cost of revenue decreased by 10.9% to IMB 43.5 million from IMB 48.8 million in the same period of fiscal year 2021, which was mainly due to a decrease in the IT-related expenses. Sales and marketing expenses decreased by 28.9% to RMB $44 million from RMB $61.9 million in the same period of fiscal year 2021, primarily due to optimized spending on branding activities. IMD extent decreased by 24.8% to IMD 21.8 million from IMD 29 million in the same period of fiscal year 2021, mainly due to headcount optimization during the first quarter of fiscal year 2021 that resulted in an increase in day of compensation payment during that period. General and administrative Expenses decreased by 1.4% to RMB 23.2 million from RMB 23.5 million in the same period of fiscal year 2021, mainly due to a decrease in the allowance for startable receivables. Amortization of intangible assets decreased by 8.2%. to RMB 64.7 million from RMB 70.5 million in the same period of fiscal year 2021. Loss from operations was RMB 98 million compared to loss from operations of RMB 94.9 million in the same period of fiscal year 2021. Net loss attributable to Mogul's ordinary shareholders was RMB 95.5 million compared with a net loss contribute to ordinary shareholders of RMB 88.9 million in the same period of fiscal year 2021. Adjusted EBITDA was negative RMB 25.2 million compared to a negative RMB 17.4 million in the same period of fiscal year 2021. Cash and cash equivalents restrict cash and short-term investment for IMB $776.3 million as of June 30, 2021, compared with IMB $803.1 million as of March 31, 2021. During the quarter, we continued to successfully execute on our business transformation towards an LVD-focused model From a financial performance perspective, the strong user retention rate and output are the best validation of our LVB-focused strategy. We have clearly reached an inflection point in that the LVB business will be our main growth driver going forward. Our investment in Rayshard technology represents a continuous effort to expand and utilize our capabilities to provide services for business customers. In addition, the increasingly changing market environment may impact our performance in the near term. However, with our disciplined financial strategies of investing and serving our brands and merchants on our platform, while diversifying our revenue structure to gain incremental growth We will also continue to optimize customer acquisition costs and our overall operating efficiency. We remain confident in the long-term growth prospects for our business. So with that, I would like to open the call for Q&A section. Thank you.
spk05: Thank you. And as a reminder, if you wish to ask a question, simply press star, then the number one on your telephone keypad. Once again, that is star one on your telephone keypad. We will pause for just a moment to compile the Q&A roster. Your first question is from the lineup, Charlie Chen from China Renaissance. Your line is now open.
spk04: Thank you, Director. Thank you, Chuck, and all the directors for answering my questions. I have two questions here. The first one is, I saw in the announcement that the overall competitive environment may be in a state of escalation. I would like to understand the change in the competitive environment for the company's business, including the customers. What impact will it have on the company's future business? What impact will it have on the company's competitive advantage? And then the second question is about the acquisition of Raysha. We also know that Raysha is a service company. After the acquisition, I would like to ask the company if Raysha can help the company in... What kind of work should be done for these brands? Because in fact, we have learned that the company is also continuously trying to integrate the supply chain, including the KOL and this brand. After RuiSha joined, in this aspect of the supply chain integration, what additional functions can it have to help the company expand its business? Thanks, management, to take my questions. I have two questions here. First one is regarding the competitive landscape. In the announcement, I noticed that the management mentioned the competition environment actually increasing so how does that environment change will impact the operating matrix of your company including like user acquisition user retention and also other operating matrix how does that impact the company's financials and also how does your company believes your competitive strengths will be changed or remained going forward so that's the first question And my second question is regarding the acquisition of Raisha. I believe the company has been making a lot of efforts in consolidating or integrating the supply chain by connecting the KOLs and the brands together. So how will Raisha fit in this integration and how can Raisha help the company to expand the business or do more to further strengthen the company's competitive edge. Thank you.
spk03: Thank you, Charlie. Let me answer your first question, which is about competition. First of all, I think everyone is optimistic about the market, so there are more participants coming in, which brings a certain result.
spk02: Okay, I'll translate now. I'll just answer your question about the intensified competition. This is because market participants are very optimistic about this market, so many more players are entering the market.
spk03: As more and more KOLs or hosts entering the market, they compete on price. So as a platform, we also compete on price with other platforms. So this is the first aspect, which is mainly in the price competition. So when the price competition is more intense, we will certainly be affected by some of the competition. The second part is mainly the flow cost. Since about two years ago, the growth of mobile network users has been circulating, and the flow cost has been increasing more and more. Other than the intensified competition on price, the cost of user traffic is also increasing. As the growth of Internet users started to slow down,
spk02: the price to gain traffic has been decreasing fast.
spk03: As for the advantages of our company, it is very clear that in the channel of live broadcast e-commerce, we started early and invested deeply. For all the participants in this industry, especially live broadcast e-commerce businessmen, etc., we serve them in all aspects. They operate on the Mugu Street platform, So for us, our competitive advantage is one of the early starters of the LVB business.
spk02: We have very in-depth know-how, so we know the host and the merchants and the suppliers very well. For our host, the cost of doing business on our platform is lower than others.
spk03: On the other hand, the value of our long-term users, their single users, The second component is our users. Our users are very loyal to our platform, and they have been with us for a long time. So our output is much higher than other platforms. So combined with the
spk02: So, these combined competitive advantages help us to maintain a reasonable growth despite the intensified competition in this space.
spk03: The second question is about Risa Technology. This company's general team is actually a group of engineers from Nongwu Street. They started their business a few years ago, two and a half years ago. So now I'll answer the second question about the Rayshard acquisition. So Rayshard was founded by a group of engineers that were from Mogul.
spk02: 2.5 years ago. So they left Mogul to fund with Rayshard. So also Mogul is one of the angel investors.
spk03: So Rayshard's team and Mogul's team, we have been sharing a common vision and common values. In the past two years, the two companies have had relatively close mutual support and cooperation.
spk02: So the Rayshard team and the Mogul team, we share the same vision and value. So during the past 2.5 years, we have been cooperating and kept a close contact.
spk03: During the process of Mogul's growth, we have accumulated a lot of e-commerce-related basic technology and e-commerce operating capabilities.
spk02: So in Morgan's history, we have accumulated a very in-depth e-commerce technology, a very advanced e-commerce technology and operational know-how. Risha team, they have used the same technology and know-how to service many, many brands.
spk03: And then the other point is that Risha's customers are basically all very large-scale platform companies. So the customers they serve and the traditional customers on the platform still have a very obvious difference in scale. In general, Mushroom Street is based on small and medium-sized businesses. In terms of service, Risa is one of the top brands in China and internationally. In terms of collaboration with Mushroom Street, first of all, we can talk about some of the big brands that are difficult to serve and attract.
spk02: Rayshard's customers are internationally or the biggest brands in China or internationally. So that provides us with a lot of synergy because traditionally, the more good customers and brands are small or mid-sized. So with the acquisition of Rayshard, we'll be able to expand into more brands, and that was hard to acquire.
spk03: So 100% of research revenue is from service income. So that will diversify our income stream.
spk02: That was by Mogu's income stream, which will be more healthy going forward.
spk03: After the acquisition, Mogu's team can support Risa even more. In the future, we will also provide more services to the Risa platform, including the more mature private e-commerce services. So after the acquisition of Rayshard, we'll be able to service our existing brand on mobile platform, such as private traffic development, live forecasting, and cross-border business. So going forward, in our revenue breakdown, we'll have the 2C and 2B components. In the 2B part, we expect to see very fast growth.
spk02: That's all about the Rafa acquisition.
spk04: Thank you, ma'am. Once again, if you wish to ask a question, simply press star, then the number one on your telephone keypad.
spk05: Your next question is from the line of Cecilia Yu from AJ Securities. Your line is now open.
spk00: Thank you, Tom. I have two questions. The first one is about the anti-corruption law and regulations in the field of the Internet. Is there a chance for a relatively large-scale company like Mogu Street to do so? The second question is about the purchase of Hangzhou Rui recently. Is it possible for a relatively large-scale purchase in the first or second year of the company to continue to look at the company's future business prospects?
spk02: I'll translate the question first. So there are two questions. First is about the recent regulations on anti-monopoly. So with the recent regulation environment, does the management see more opportunities for companies like Mogul? The second question is about can management elaborate more on the acquisition, because this is quite a major deal for the company. 21B.
spk03: Let me answer the first question about anti-corruption. First of all, we are very confident in the Chinese internet market. We still think it is the fastest growing market in the world. It is also a very big market for our company.
spk02: First, I'll answer the question about anti-monopoly regulation. So we're still very confident about the Internet space, and we think it will be the fastest-growing space globally, and it will provide us with a lot of opportunities.
spk03: And then, in my personal understanding, anti-monopoly should be the business behavior of monopoly, rather than the scale of a company.
spk02: So from my personal point of view, the anti-monopoly is about monopoly behavior, not about the size of the company.
spk03: So I think going forward, the Chinese internet market will be more open and which I think will be beneficial for all the participants in the space. And for us, I think it will benefit us as well. On the other hand, we are one of the major e-commerce platforms in China. We are also one of the 34 major e-commerce platforms in China. Therefore, we have to pay some costs to meet the requirements of the border control.
spk02: On the other hand, as one of the major e-commerce platforms in China, we are one of the 34 platforms to be heavily regulated by the Chinese authorities. So that will, for us, will bear some cost to comply with the regulation.
spk03: But in general, we are still very confident about the future. And the whole process of our business has always been based on compliance with the law and regulations. So it should not have too much impact. So in general, this is an event that is more positive for the market for us.
spk02: For us, we're quite confident and optimistic about our outlook. We have been complying with the law and regulations during our whole history. So regarding the regulation, I think it will benefit the market and us as well.
spk03: Okay. And then about Risa's question, I've already mentioned it in more detail. Generally speaking, this is a new business that we have strategically added. From the perspective of the entire revenue structure of the company, our previous revenue was mainly completed by a 2C marketplace. In the future, we will add more 2B services, which will make our entire revenue more diverse and stable. This should be a more important performance in the future.
spk02: So for the racial acquisition, I think I have elaborated a lot on this topic. So for the racial acquisition, it's a very important strategic initiative for Mogul. It will diversify our revenue stream. So in the past, we'll focus on the 2C market. Going forward, we'll add the 2B market. income and revenue stream. So that will diversify our revenue stream and so it will help us sustain the healthy growth.
spk03: 最后补充一点的话, 最后一点补充一下就是, 在过去20年的话, 中国互联网的C单市场是增长很快的。 那么其实从这几年, 应该大家看中国的消费品牌, 以后春水一样的在发展, No matter from their product capacity or scale, and the desire of the global retail market, there is a very big growth. So we also hope that in this round of growth trend, there will be our company's active participation and a part of our market's comrades. This is also a very important strategic consideration of our acquisition of Raytheon Technology. Okay, I'm done with my answer.
spk02: In the past 20 years, we can see that the 2C consumer brands have developed very rapidly in terms of scale and global development. Going forward, we want to help them go global, and we want to participate in this trend and to service our customers.
spk00: And that's one of the...
spk05: Once again, if you wish to ask a question, simply press star, then the number 1 on your telephone keypad. Once again, that is star 1 on your telephone keypad. We have a question from Charlie Chan from China Renaissance. Your line is now open.
spk04: Okay. Thank you, Mr. Guan, for giving me another chance to ask a question. We can see that in this quarter, the GMV increase in LVB may be a little slower than before. Of course, as I mentioned, there are some competition, including some problems with the current economic environment. So, I would like to ask if the company has any specific ideas about the future growth of GMV in this business. For example, whether it is expanding the number of KOLs, or more recruitment, or doing some actions in terms of customers. How can we increase the growth rate of LVB as soon as possible? My question is related to the LVB business GMV growth, which we see in this quarter is kind of slowing down from previous quarters. I'm just wondering what kind of strategy or considerations the management has been taking to improve the situation, whether it's related to increase the pool of KOLs or getting more brands on board or increasing the pace of new user acquisitions, et cetera. So what kind of strategies or tactics the company is taking to try to improve the GMV growth going forward? Thank you.
spk03: Thank you, Charlie. I think the future development is still based on our own advantages. In general, our biggest advantage is the ability to cultivate and manage the whole broadcast, as well as the help of the public media partners. So, what we still need to do next is to train and develop more, more, more, more, more, more, more, more, more, more, more, more, more, more, more, more, more, more, more, more, more, more, more, more, more, more, more, more, more, more, more, more, more, more, more, more, more, more, more, more, more, more, more, more, more, more, more, more, more, more, more, more, more, more, more, more, more, more, more, more, more, more, more, more, more, more, more, more, more, more, more, more, more, more, more, more, more, more, more, more, more, more, more, more, more, more, more, more, more, more, more, more, more, more, more, more, more, more, more, more, more, more, more, more, more, So, this is mainly from the point of view of our profit margin. The company already has a special team to expand these products with higher profits. The third is still the growth of users. We think that although the competition has increased, the market space for live customers still exists. Now, in addition to these relatively It's a very high level of loyalty, and you have a very high number of customers. We also pay a lot of attention to these first-time users, as well as some in-depth cooperation with other platforms to be able to acquire more live customers at a lower cost. Recently, we have started to have some cooperation with Tencent Video and Tencent Video Live.
spk02: Going forward, we will continue to leverage our competitive advantages. So for the strategy initiating, there are three main points. First, our operational capabilities with the KOLs. Going forward, we'll continue to leverage say, more KOLs of different categories, and also to support our top KOLs. And then we'll develop including more long-tail KOLs. And second is the category expansion. We'll expand to new categories with higher gross profit margins. So we currently have a team that is working on expanding to new categories. And the third is users. So our existing users are very loyal to our platforms. But we still think there's space to grow. So we'll try to attract new users that have never tried live broadcasting shopping before. And so, for example, we'll work with other platforms to acquire users with with a relative low cost. For example, we have been working with Tencent Videos to promote our platform.
spk03: Thank you.
spk05: There are no further questions. I will hand it over back to Mr. Vivian Rang for closing remarks. Rang, please go ahead.
spk02: Sure. Thank you. And thank you, everyone, for joining the call today. If you have any further questions or comments, please don't hesitate to reach out to any one of us here at Mogul. This concludes the call today.
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