MOGU Inc. (MOGU) on Q2 2021 Results - Earnings Call Transcript
Operator: Ladies and gentlemen, thank you for standing by, and welcome to MOGU's Second Quarter Fiscal Year 2021 Financial Results. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. . I would now like to turn the call over to Mr. Rene Vanguestaine. Please go ahead.
Rene Vanguestaine : Thank you, Amy. 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. 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.
Qi Chen : Hello, everyone. Thank you for joining us on the -- on second quarter results announcement of the fiscal year 2021 today. In the past quarter, we continued to see a high-growth rate in the live video broadcasting e-commerce. The GMV increased by 42.2% year-over-year to RMB2.3 billion in the second quarter, contributing 74.4% of the total GMV. MOGU Live has essentially become our growth engine as the first mover of live e-commerce. During the last four years, we have established a very differentiating shopping experience, which enable us to capture more growth opportunities in the e-commerce space in China. Not only do we provide quality and affordable products directly from the manufacturers to our customers, we also offer much more through our KOLs, such as diversified fashion content, immersive interaction and companionship. This experience strengthened our customer engagement. Customers continue to spend longer time on our app and shop with higher frequency. Second quarter is a typical quarter with seasonality. Despite that, we have adopted a more prudent approach in terms of the sales and marketing. The number of our LVB active buyers grew 20.7% year-over-year. In addition, our social sharing and referral program is working very well to acquire more customers with precise targeting and higher cost efficiency. We're continuously enriching the mobile shopping experience. We have launched a version of short video detail page, which captures the best product presentation by our KOLs in their live shows, different from the traditional static detail page. This innovation allows our users -- allows our customers, no matter inside or outside of the MOGU Live room, to enjoy KOL's explanation, bidding and matching advice and creating a more efficient and effective live shopping experience. To build a more sustainable live e-commerce ecosystem, we'll continue to focus on new KOL incubation and supply chain empowerment. During the Double 11 promotion, our top KOLs continued to break the records. Two KOLs have each achieved over 200 million sales over one live session, marking them the top KOLs in the whole industry. Our KOLs also have the highest value for fans across all the live e-commerce platforms.
Raymond Huang : Thank you, Shark. Thanks, again, everyone. This is Raymond speaking. Thank you for joining our conference call today. So now I'll walk you through our second quarter fiscal year 2021 financials. We believe year-over-year comparison is the best way to review our performance. Unless otherwise stated, all percentage changes I'm going to give you will be on that basis. Let's review the financials first. Our GMV for the second quarter of fiscal year 2021 was RMB3,112 million, a decrease of 25.3% year-over-year. GMV for the 12 months period ended September 30, 2020 was RMB14,951 million, a decrease of 16.1% year-over-year. Our focus has been growing the GMV from live video broadcasting, which has increased by 42.2% year-over-year to RMB2,316 million. LVB associated GMV for the second quarter of fiscal year 2021 accounted for 74.4% of the total GMV. Active buyers of the LVB in the last 12 months period ended September 30, 2020, grew by 20.7% year-over-year to RMB3.5 million. So let's now turn to revenues. During this quarter, total revenues decreased by 43.1% to RMB112.5 million from RMB197.9 million during the same quarter of fiscal year 2020. Commission revenue decreased by 32% to RMB68.9 million from RMB101.3 million in the same period of fiscal year 2020, primarily due to the restructuring of the company's business towards a LVB-focused model. Commercial revenue from the LVB business grew year-over-year continuously and was in line with the continued year-over-year growth in the LVB-associated GMV. Marketing and services revenues, which is primarily generated from our marketplace business unit, decreased by 71.5% to RMB18 million from RMB63.1 million in the same period of the fiscal year 2020. The decrease was primarily due to restructuring of the company's business towards a LVB-focused model. I will now walk you through our major costs and expense. Cost of revenue decreased by 40.1% to RMB45.5 million from RMB76 million in the same period of fiscal year 2020, which was primarily due to a decrease in the cost associated with decreased online direct sales and IT-related expenses.
Operator: Thank you. At this time, we will be conducting a question-and-answer session. . Your first question comes from the line of Locky Lau -- sorry, your first question comes from the line of Charlie Chen with China Renaissance. Charlie, your line is open.
Charlie Chen : .
Qi Chen: .
Raymond Huang : Okay. Maybe I will just translate the question and answers for the benefit of the audience. So the question was the -- so question is about the slower growth rate of the GMV from the LVB-associated business over the last quarter. And the Shark's answer to that was, number one, the Q2 was actually a season with -- was a quarter with seasonality. And number two, apparently, we are still seeing some net over effect from the COVID-19 situation, because a lot of apparel factories are actually not 100% prepared and sometimes they are running out of capacity as well as raw materials they need to produce the apparels. And number three, compared with the previous quarter, I think the previous quarter from the -- from 2019 was actually a quite strong quarter. So the previous quarter was actually a grow out of a lower base. And this quarter is actually compared with a stronger quarter of last year. So that's the three reasons that Shark addressed the question about the slower growth rate. And going forward, I think, we have achieved very good results on the Double 11 promotion and we are seeing very strong performance from the -- our live video broadcasting business. And we’re very confident with this quarter. And as we have achieved our growth in the Double 11 promotion and we are seeing very, very good results from this quarter so far.
Operator: . Your next question comes from the line of Locky Lau with A.J. Asset Management. Locky, your line is open.
Locky Lau: .
Raymond Huang : So maybe, Locky, I will just translate the question and answer at the same time for you. So the question was about the Double 11 performance we have, maybe basically just one month ago. And the other question is about the cash we have received from the investees repurchase of the investment. So number one on the Double 11 promotion. Apparently, it's very important promotion for all the e-commerce platforms in China. And this year, again, our focus is really on the MOGU Live, our live video broadcasting business. And apparently, this year we have delivered very, very strong results. I think a few key points I want to emphasize is that, number one, our top KOLs, they have each delivered over 200 million sales over one live session. So that's a very, very impressive result. That's basically 200 million sales over just a few hours. That's extremely competitive results compared with all other KOLs from all other live e-commerce platforms. And that shows our -- that's basically a result of our long-term dedication to live business and our long-term dedication to the supply chain empowerment and how we empower our KOLs.
Locky Lau: Okay. Thank you.
Operator: Your next question comes from the line of Veronica Shen with China Renaissance. Veronica, your line is open.
Veronica Shen : . Thanks, management, for taking the question. My question is regarding the number of active buyers. We have seen 12 months active buyer decline on quarter-over-quarter basis. I'm just curious about what is the reason behind? And how should we look at the user growth going forward? Well, I understand the third quarter is low season for us. So any color about the fourth quarter and the coming year would be helpful? Thank you.
Qi Chen : .
Raymond Huang : Well, yes. Maybe I will just quickly translate Shark's answer. So number one, as you can see that we are actually going through a transition from the traditional e-commerce to the live e-commerce. And apparently, we need to change our tactics as well. So we're seeing that the live users tend to have much higher ARPU and much higher frequency and a very, very strong loyalty to the platform. So we actually value these customers more than the traditional e-commerce customers. And honestly, due to the competition, I think in the last few years, you can see that the cost of customer acquisition has been increasing quite rapidly. So we reduced our marketing and -- the sales and marketing expense in the traditional competition for e-commerce customers. We're actually more focused on the customers from the live video broadcasting channel.
Veronica Shen : . My next question is about the take rate. I want to know why take rates shows a downtrend in this quarter. So could you please elaborate more about it? And how's the trend going forward in the following quarters? Thank you.
Qi Chen : .
Raymond Huang: So I will just quickly translate Shark's answer. So the question was about the decline of the take rate of last quarter. Apparently, we are seeing a few reasons behind it. Number one, we are seeing the – in the restructuring process -- progress of shifting from a traditional e-commerce to live e-commerce. The take rate for the traditional e-commerce usually was much higher than the live e-commerce. And we are seeing that the live e-commerce takes up a greater percentage of the total GMV in last quarter. So that's number one. We are seeing that the live e-commerce has a lower take rate, so which actually dragged down the overall take rate. And secondly, going forward, we are thinking that the take rate from the live e-commerce part has room to improve because the KOLs are actually very loyal to the platform and their fans are very, very sticky to the platform as well. And we have all the exclusivity agreement with them. So going forward, it's possible that our take rate can potentially go up, it has room for improvement. And number three, if we don't look at the revenue side -- we don't look at the take rate side, and we just look at the cost side, we can see that the cost from -- the platform cost has been decreasing over the last two years because the KOLs actually taking over a lot of organization burden from the platform. They are hiring a lot of people to do all the product curation, product selection. They are hiring a lot of people to do all the quality control, so that we, MOGU, the platform, doesn't need to take -- doesn't need to hire as many people as we used to, which is evident in our cost of revenue decreased by 40% and in our research and development decreased also by 45%. You can see that the platform expense and cost has been coming down over the last two years.
Veronica Shen: . Let me translate my question first. In this quarter, we can see we did a good job on cost control and our non-GAAP net loss has narrowed. So should we expect breakeven point within this year?
Raymond Huang : Okay. Thank you, Veronica. I will just answer the question directly. So I think breakeven is a very important goal for our company in 2020 and 2021 -- fiscal year 2021. I think it's a very important milestone. But we don't limit our financial performance because of the breakeven point. We are actually thinking of, from a long-term perspective, live video broadcasting e-commerce has a very, very long runway, and there's a lot of things we can do to grow this business to make this bigger. So breakeven is a very important milestone, but we wouldn’t be able to give -- we don't provide a very specific guidance in terms of timing or in terms of when we can or how the specific timing there, we will definitely do that. But from a big picture perspective, you can see that the loss from operations has been decreasing dramatically. And the company's cash positions -- or I guess cash flow position is getting increasingly healthy. So we think our financial positions are in a much better shape than a year ago. Well, definitely, we keep in mind that we want to do -- we want to make sure that the breakeven is possible in -- for the future, but we don't give very specific guidance. But we want to assure all the investors that we are trying our very, very best to capture all the potential possible growth opportunities in the live e-commerce space in China.
Operator: . Your next question comes from the line of Charlie Chen with China Renaissance.
Charlie Chen : .
Raymond Huang : So the question was about the incubation of the new KOLs. So basically, as we can see that the top KOLs in our MOGU platform are doing very, very well. So what's the company's strategy going forward for the KOL incubation?
Qi Chen : .
Raymond Huang: So, thank you, Chuck. So I'm going to translate the answer very quickly. So the question is about the KOL incubation. Apparently, I think MOGU is a platform that has been extremely dedicated to KOL incubation. We have all the very comprehensive tiering and empowerment training system to make sure that KOL can grow and can thrive on our platform. So our operation team, their key KPI or their key objectives in their day-to-day operations is to make sure that the KOL can grow and thrive on our platform. They are different today. The majority of our GMV contributor on the MOGU platform and they definitely will be the key growth driver for us going forward. So we don't disclose very specific number of how many KOLs actually deliver more than 10 million sales over whatever period but we are seeing that the -- a lot of new faces are actually popping on our own platform. We are seeing new KOLs are performing very well on our platform, thanks to the very strong empowerment of our supply chain team, and they can actually deliver very, very affordable, at the same time, very differentiating products to our customers, and they can be recognized and they can be also well received by our customers. So as you can see that Double 11 was a major event that we dedicated a lot of resources to our top 2 KOLs. But going forward, when it gets to the December promotion event, we will actually replicate our experience, replicate our operational art with more me-too long tail KOLs and to make sure that they can grow and thrive as well, they can actually sell more. So that's our goal going forward, and that's the key KPI of our operation team going forward.
Operator: There are no further audio questions. I will turn the call back over to Mr. Rene Vanguestaine for closing remarks.
Rene Vanguestaine : Thank you, Amy. 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 MOGU. This concludes the call. Good night, all.
Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.
