BlueCity Holdings Limited (BLCT) on Q2 2021 Results - Earnings Call Transcript
Operator: Good day, ladies and gentlemen. Thank you for standing by and welcome to BlueCity's Second Quarter 2021 Earnings Conference Call. Currently, all participants are in a 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, you may disconnect at this time. Now, I will turn the call over to Lingling Kong, Head of Investor Relations for the company. Ms. Kong, please proceed.
Lingling Kong: Thank you operator and hello everyone. Welcome to BlueCity's second quarter 2021 earnings conference call. Joining us today are Mr. Baoli Ma, Chief Executive Officer; Mr. Alfred Ying, Chief Strategy Officer; and Mr. Junchen Sun, Acting Chief Financial Officer. We released results earlier today. The press release is available on the company's IR website at ir.blue-city.com, as well as from newswire services. A replay of this call will also be available in a few hours on our IR website. Before we continue, please note that today's discussion will contain forward-looking statements made under the Safe Harbor Provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, the company's actual results may be materially different from the expectations expressed today. Further information regarding these and other risks and uncertainties is included in the company's public filings with the SEC. The company does not assume any obligation to update any forward-looking statements, except as required under applicable law. Please note that during today's call, management will also discuss certain non-GAAP financial measures for comparison purpose only. Our GAAP results and the reconciliations of GAAP to non-GAAP measures 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 renminbi. With that, let me now turn the call over to our CEO, Mr. Baoli Ma. Mr. Ma will deliver opening remarks in Chinese. I will then translate his remarks. After that, our CFO, Mr. Ying, will take over to discuss our growth strategies. Then our Acting CFO, Mr. Sun will details on our financial highlights. Mr. Ma, please go ahead.
Baoli Ma: Thank you Lingling and hello everyone. Thank you all for joining our earnings conference call today. We are pleased with the healthy growth across all our business lines. Total revenue grew by 18% year-over-year to 291.9 million with a strong revenue growth of 134.5% year-over-year from He Health and 113% year-over-year growth from membership services. All MAU’s grew by 29.3% year-over-year reaching 8.3 million. More excitingly the continued user growth momentum set up solid foundation for expanding user engagement and incremental monetization opportunities. In this quarter our total paying users reached 724,000 up 58.1% year-over-year. This results fully demonstrates our ability to drive steady and healthy growth through improving monetization capabilities and outstanding executions. Another exciting thing in this quarter was the He Health online consultation services launched in late July. Dozens of renowned doctors from China’s top hospitals were available to interact with thousands of clients and patients on the platform. He Health kick started a wide range of activities aimed for appealing to more users as well as hosting awareness and knowledge of men’s personal health. This includes hosting three live streaming sessions and allowing users to raise questions on topics such as HIV via live Q&A with doctors from China’s top hospitals and offering users limited timeframe one-on-one consultation with special access. This promotion event were very successful and brought over 50,000 participants in each live streaming session, setting our digital health strategy off to a great start with encouraging user feedback. In addition to the launch of our successful online consultation services, we are also extremely pleased with the progress on the HIV related front. First, we have successfully expanded coverage of two of our path, post exposure prophylaxis delivery service from 40 to 55 cities in China recently. Second, our efforts in improving PrEP, pre-exposure prophylaxis, awareness and promotions also proved to be very rewarding. The number of domestically manufactured PrEP orders triggered this quarter plus it was on shelf and soon sold out, showing the increasing awareness of HIV protection as well as a huge demand for affordable PrEP in China. PrEP is an important and useful HIV prevention solution, yet awareness still remains slow among at risk populations in China and elsewhere in the world. We are committed to deepening partnership with domestic manufacturers to further increase PrEP availability and accessibility in China which we believe will be critical in value for our members and societies. We are on the right direction to achieve our goals for He Health with our unwavering mission and strong execution capabilities. With the growing demand for China's online health consultations and a weakening HIV awareness we are well positioned to capture this enormous industry opportunity with our first mover advantage and inherent competitive value. On the overseas market front, we remain committed to actively organize and participate in a wide variety of activities in social and public events to continue building our global brand presence. In this quarter, we launched the global Live Your Pride campaign during prime months 2021 to advocate inclusivity and diversity and fundamental everyday values. Blued released its new global TV commercials encouraging the LGBTQ community to Live Your Pride to kick off the campaign. The campaign featured our online Pride party on the Blued app, a vibrant rainbow app UI and extensive grid and activities across the globe. It encouraged individuals from all walks of life and cultures to share their real self on the Blued app and connect with others via social posts and live streams, a heartwarming celebration of individual identity. Blued also presented the Blued network from June 15, 2019 prime months, which combines the Blued -- which combines apps -- features to create a more fun filled experience. The campaign was extraordinarily successful attracting over 8 million users and generating over 8000 user posts across multiple social media platforms with 1.5 million of views on global TVC . Taking Latin America as an example, app ratings of the Blued mobile app increased from 3.9 to 4.4 on Apple Store after the campaign. Moving forward, we will continue to organize more aware social events to further improve our visibility and brand awareness in the global market. And enhance monetization capabilities. We also continued to accelerate our product innovation and optimize our product offerings and achieve the meaningful program. In June, we upgraded our location based social networking function, our Mainland China addition to allow users to find friends in different cities instead of just friends located nearby. In August, we introduced a series of new features to protect users identity and privacy on the global edition including prohibiting screenshots and screen recordings, during live streams and video calls. In addition to this added protective measures for user’s security, the Private Album features ensures that faces do not appear in the albums public thumbnails and access to albums, photos allowed only when the owner gave individual viewer authorization. Meanwhile users can choose to send photos that can disappear within seconds of being read preventing users from capturing screenshots. With Finka, we drove out a new monthly service package which allow subscribers to see visitors through their main page and profile. This new function added efficiency matching and promoted user interactions. Statistics have shown the paying ratio already exceeded 5% within three months after it launched. Moving forward, we will closely monitor our user’s responses and remain committed to further optimize user experience, across all our platforms. We remain committed to offerings with continued value to our community, in addition to the health services already in place, we began focusing on the psychological issues in the LGBTQ group. Our Danlan Public Interest resonated our video series called Danlan psychological insight, which is expected to increase awareness and interest of the mental health issues within sexual minorities. Meanwhile, Danlan Public Interest will cooperate with established psychologic consulting institutions with years of experience for minority group to launch via 100-hour free psychological consulting project for supporting community members in need. Now let me turn the call over to our CSO, Alfred, who will discuss about our growth strategies.
Chung-Chieh Ying: Thank you, Mr. Ma and thank you everyone for joining our call today. I joined the company as the CSO in July this year. The purpose for my joining BlueCity is mainly and plainly for the business future and are looking for ways to make a profit when company maintains sustainable operations. Our long term strategy is to pursue quality growth. What I did with my company caught across is that, it has resilient business in a competitive market. In order to achieve quality growth, let me give you some highlights on our latest thinking of our core strategies. The first, is about our business model. We will continue to diversify revenue stream and monetization methods where we maintain the leading position in a live streaming services with high quality content. Our long-term goal is to have larger revenue contributions from social networking membership services and health related product and services. As our members and community continue to raise the awareness in health and pursue better lifestyle, we expect He Health to achieve stronger growth momentum in the future quarters and it becomes a new driver of growth for the company. The second is about our product offering. We will continue to customize and refine our product portfolio, which provides different branding and unique services in different markets to serve the subgroup of LGBTQ through our R&D effort. In addition to the organic growth from the better products via R&D, we are evaluating potential strategic investment and acquisitions in the market and sectors which has greater synergies to our current product portfolio. Therefore, we will remain committed to further exploring those opportunities to complement our current business and expand our reach to a broader range of users. The third is about the probability. We are in the process to reassess our business model and measure our operating efficiency by user's lifetime value. While the company was going through the expansion period, we have invested a lot in our products, services, brand name, a solid user base, and a community for our members. We are now in the prime stage to balance between revenue growth and profitability. Therefore, we will not only focus to strengthen our user engagement and the increase retention via our products and the services, but also we will implement measures for expense control to improve our operating efficiency, which starts from Q3 this year. Now let me turn the call over to our Acting CFO, Junchen Sun, who will provide details on our financial performance.
Junchen Sun: So, thank you Alfred. Now let me go through our financial highlights for the quarter. Before I go into details, please note that the numbers presented are in RMB and are for the second quarter of 2021 unless stated otherwise. All percentage changes are on a year-over-year basis, unless otherwise specified. Detailed analysis is contained in our earnings press release and which is available on our IR website. Our total revenues for Q2 was RMB291.9 million up eighteen% year-over-year, driven primarily by our growing user base, and improved monetization of our diverse service offerings. In this quarter, our total MAUs from both apps grew 29.3% to 8.3 million with a strong growth of 58.1% from our total paying users, reaching 724,000. Revenue from overseas contributed 12% to total revenue, a slight increase from 11.2% in the same period last year. Notably, we also accomplished a meaningful progress in diversifying our revenue streams with encouraging year-over-year revenue growth from a membership services and this quarter. Revenue from last streaming services was RMB223 million, up 6.1%, our quarterly paying users for last premium services increased 5% to 182,000 from the same period last year. ARPPU was RMB1223, an increase of 1% compared to the same period last year. Revenue from membership services was RMB33.7 million, up 113%. Our paying users for membership services increased 82.9% to 599,000 and driven mostly from the new service offerings. ARPPU was RMB56.3, up 16.5% year-over-year and primarily driven by higher ARPPU for our pay produce services and this result fully illustrates our future monetization potential for our membership services and we expect accelerated growth for our membership services as we continue in reaching and optimizing our service offerings. Revenues from advertising were RMB18 million, up 67.7% with the increase primarily due to our continuous efforts, we are attracting more advertisers with new advertising and marketing solutions as well as improved advertising efficiency. Revenues from merchandise sales of He Health reached 15.3 million up about 134.5% we expect He Health to achieve strong momentum into the future quarters as our priorities in devoting resources to expand our health related service offerings and the geographic coverage remains. Now moving to our cost. Cost of revenues increased by 12.9% to RMB192.1 million. The increase was primarily due to the higher revenue sharing costs along with the growth of last premium services, increased cost of products in line with the growth of He Health pushing that sales as well as the increased stock expenses. Gross profit was RMB99.7 million up 29.9% and gross margin was 34.2% up three percentage points from the same period of last year and benefited from the increased revenue from higher margin membership and advertising services. We expect to further accelerate revenue contribution from our membership services to achieve overall margin improvements. Meanwhile as revenue sharing is still the key components in our cost of revenue, we remain committed to actively explore options to reduce revenue sharing percentage and implement a more sustainable model for our live streaming service. Operating expenses were RMB135.9 million, up 64.5% year-over-year. Sales and marketing expenses were RMB68.9 million up 68.2%. The increase was mainly due to the increased advertising and promotion expenses, as well as increased stock cost and the share based compensation expenses. Technology and the development expenses were 51.6 million up 64.6%. The increase was mainly due to the higher stock cost in the technology related to departments, increased in content production, server and the bandwidth cost as well as share based compensation expenses. G&A expenses were 15.4 million up 49.4%. The increase was mainly due to the increased professional fees and stock, cost and partially offset by the decrease in share based expense due to the stock option for futures. Net loss was 35 million compared with a net loss of 3.3 million in the same period last year. Adjusted net loss was RMB38.4 million compared with adjusted net loss of 3 million in the second quarter of last year. As of June 30, 2021 we had cash and cash equivalents and term deposits of 453.7 million compared to 611.8 million as of December 31, 2020. Now moving to our guidance. Due to the slower than expected growth from our live streaming services and the muted monetization progress from overseas market impacted from the economy downtime resulting from the pandemic. Our full year 2021 total revenue is revised downwards to the range between, RMB1.15 billion to RMB1.20 billion, representing a 12% to 16% year-over-year growth. As we follow and achieve our long-term growth of objectives, we are still confident in our business model and our ability to bounce back strongly. That concludes our remarks -- our prepared remarks. Let's now open the call for questions. Operator, please go ahead.
Operator: . The first question comes from the line of Laura Champine from Loop Capital Management. Please go ahead.
Laura Champine: Thank you for taking my question. I wanted to get more information about the slowdown in the live streaming business. If you could be more -- give us more color on what is driving that, if you've got any visibility on how long it lasts, it looks like the guidance reflects it lasting through the end of this year and maybe talk about what the trend was before we started to see the delta variants impact sales or impact revenues?
Chung-Chieh Ying: Hi, this is Alfred. Yes, regarding the live streaming business in China, as you know, the market actually is pretty competitive and complicated and especially those company with show videos have entered the live streaming business which intensified the market competitions. And the result is that that increase, the share cost of the live streaming somehow they have -- that can impact our revenue. That was the first reason. The second reason was that, as you might know, study from four quarters last year, we adapt new live streaming strategies to try to improve the activity of users for the Tier 3 live streamers. And this kind of adjustments was taking much longer time than our original expectation. That kind of adjustment probably will last to third quarter as well. So what we are expecting is that the competition in the market will continue. We will try to maintain -- try to maintain and improve our revenue from live streaming business in the second half of this year. But the business compared to our original guidance is either below than our original expectation.
Laura Champine: Are there actions that BlueCity is taking to reaccelerate the growth of that part of the business next year or is the focus really on growing ancillary revenue streams such as He Health?
Chung-Chieh Ying: By the way it is that we are trying to provide lifetime service to our users, which is always our first priority. The most important is that we will try to increase the contributions from the value added services and also the membership services. And these two services will have -- are the one with higher margins. With that we think that we can improve not only owning the revenue contribution from live streaming and also the margin improvement going forward.
Laura Champine: Got it. Thank you.
Operator: . The next question comes from the line of Mr. Kevin Hung from Industrial Securities. Sir, please go ahead. Your line is open. Thank you.
Unidentified Analyst : Thank you management for taking my question. I had two questions here. First, could you share some color about the geographical distribution of overseas users? And second, what the impact on the company's strategy about the overseas market in the coming expense control from this quarter? Thank you.
Baoli Ma: Okay. Let me do the translations. Our users are mainly in the Asian region. For example, I have Korea, Taiwan, and especially for Asia especially are South Eastern Asia, for example like Thailand, Indonesia, Malaysia, and so on. In addition to our lowest user in Asian regions starting from this year, we also have the users, quite a number of users from Latin America. So, these are mainly the distribution of our users overseas. In terms of our strategies for our overseas market, in the future we will focus on lowest market with higher ROI building that. We are not only looking at the number of users, we're also looking at the contribution, the real contribution on those users -- from those users in overseas market. We will look at lowest market with the higher ROI and also, we will start implement the major expense control. Because in the past, we spent a lot of money for the user acquisition overseas. Going forward, we will look at that kind of spending very carefully for tight expense control, because as I mentioned earlier, profitability is always one of our specialties going forward. So we will implement the strategies for the expense control and look at the profitability of the company not only the overseas market in the future.
Unidentified Analyst : Thank you.
Operator: Thank you. . Seeing no more questions in the queue, let me turn the call back to Mr. Sun for closing remarks. Sir, please go ahead.
Junchen Sun: 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 our progress. Operator.
Operator: Thank you. That concludes the conference for today. Thank you for your participation. You may all disconnect your lines now. Thank you.
