Earnings Call Transcript - MOGU Q1 2020

Operator, Operator

Good morning. My name is Amy, and I will be your conference operator today. I would like to welcome everyone to the MOGU First Quarter of Fiscal Year 2020 Earnings Call. Thank you. Christian Arnell, you may begin your conference.

Christian Arnell, Unidentified Company Representative

Thank you. 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 Business Wire services. On the call today from MOGU are Mr. Shark Chen Qi, Chairman and Chief Executive Officer; Ms. Helen Wu, Chief Financial Officer; and Mr. Sean Zhang, IR Director. Mr. Chen will review business operations and company highlights followed by Ms. Wu, who will discuss financials. All three will be available to take your questions during the Q&A session that follows. Before we begin, I'd like to remind you that this conference 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. These forward-looking statements can be identified by terminology such as will, expect, anticipate, future, intends, plans, beliefs, estimates, targets, going forward, outlook and similar statements. Such statements are based upon management's current expectations and current market and operating conditions, and relate to events that involve known or unknown risks, uncertainties and 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. It is now my pleasure to introduce Mr. Chen. Please go ahead.

Shark Chen, CEO

Thank you, Christian. Hello, everyone. Thank you for joining us today. When we started MOGU 9 years ago, we had a strong belief that fashion should be accessible for everyone. Since then, we have been striving to unwrap the fashion industry and create equal opportunities for everyone, regardless of their income and backgrounds, to get involved and experience our unique fashion content, products and technology. On this mission, we set out a goal to become a fashion-driven innovative fashion and lifestyle destination. We have diversified our business to satisfy customers' increasing demands for personalized fashion content and a shopping experience. Over the last quarter, we had over 60,000 fashion KOLs, more than 22,000 live video broadcasting hosts and over 3,100 hours of highly engaging live video broadcast every day. Our live video broadcast business maintained triple-digit growth for the past 11 quarters and its GMV contribution to our total GMV also doubled over last year. All these metrics demonstrate a massive market opportunity for expanding the addressable market and additional capacity we’re opening up as our path on growth and scale. Our focus during the quarter remained on improving our user experience and keeping the triple-digit growth of the live video broadcast business by attracting more fashion and lifestyle KOLs from different backgrounds and with a wider variety of talents. We have announced four KOL training camps in Hangzhou, Guangzhou, Wuhan and Shenzhen in order to increase the number of new live video broadcast hosts. We're already seeing great results from our new up-and-coming hosts. Some new hosts have RMB 1 million GMV in a single session after less than three months of training and with our supply chain support. We are not only increasing the number of KOLs, we're also expanding our live video broadcast supply chain support into more categories, including cosmetics, jewelry, home goods, and lifestyle products. We're seeing more and more successful stories from this approach. I want to share with you one truly successful story. With our training and supply chain support, one of our top hosts who mainly focused on apparel before sold RMB 16 million jewelry in one session. This is a record high in the jewelry category across the whole industry. As a pioneer in the live video broadcast industry, we’re glad to see its popularity continue to grow rapidly among all internet users. I know we are facing some big challenges as we are not the only ones who want to increase market share in the live video broadcast industry, and we have to deal with the switch in our revenue model from a traditional online marketplace to a new generation KOL-based online fashion platform. But I also know that this is the right time to do a lot of things because it’s clear that live video broadcast is quickly becoming one of the most popular and effective content formats to drive user engagement, sales conversion, and entertainment, especially in the fashion industry. This has validated and strengthened our commitment in China’s live video broadcast industry. While most of the platforms focus on male users, we are the only one focusing on female users and have already created a whole value chain of live video broadcasts inside our ecosystem. Therefore, we are in a really good position to build a leading KOL-centered live video broadcast platform to serve and entertain a huge number of female customers. To achieve this goal, we are deploying three key strategies. First, we will further enhance the live video broadcast infrastructure and support to our KOLs, which is already one of the most comprehensive and established in the industry. This includes user traffic and supply chain, marketing and branding support, training and coaching, data and software, as well as customer services and financial services. Second, we will rapidly increase the total number of active KOLs and the broadcast hours per day. We believe the diversity and depth of our KOL community is crucial to satisfy our expanding customer base. Lastly, we will be working on innovative monetization tools to attract KOLs and upgrade software creativity. This will also help us diversify our revenue model in the future. In conclusion, I’m pleased with the solid progress we have made during this past quarter and excited about the direction we are heading. I am confident that we will capture the enormous opportunities of live video broadcast for female customers. With the right strategies in place, we will continue to drive long-term growth through our KOL-driven fashion and lifestyle destination model and grow live video broadcast related GMVs to account for over 50% of total GMV within the next 12 months. With that, I would like to hand the call to our CFO, Helen, who will walk us through our financial results for this quarter.

Helen Wu, CFO

Thank you, Shark. Thank you again, everybody for joining the call tonight. I will walk you through our first quarter fiscal year 2020 financials. We believe year-over-year comparison is the best way to review our performance. So unless otherwise stated, all percentage changes I'm going to give will be on that basis. So let's review the financials. We delivered another year of healthy GMV growth over the past 12 months with GMV increasing 12.4% when compared to last year. Our focus remains on growing our GMV from live video broadcasting, which increased to 31.5% during the same period, nearly double when compared to the same quarter last year. For total revenue, we reported RMB 248.9 million, a slight decrease of 2.8% year-on-year. The decrease was mainly driven by the commission revenue, which increased by 10% year-over-year to RMB 129.4 million, and was largely offset by a 12.3% year-over-year decrease in marketing service revenue. The commission revenue was RMB 129.4 million, an increase of about 10%, primarily due to the growth in our live video broadcast business and the slight improvement in commission rates. We expect that our overall commission rates will continue to improve for the whole platform as we increase the GMV contribution from live video broadcast and continue to improve operational efficiency, as well as expand our prime service offering in collaboration with our live video broadcast business, alongside restructuring and upgrading our market-based business. Marketing service revenue was RMB 89.2 million, a decrease of 12.3%. The decrease was mainly due to the growth in the live video broadcast business, which affected the amount of marketing service properties available on our platform and also decreased the total number of transacting merchants as a result of ongoing optimization upgrades of the merchant structure on our platform to improve overall quality. Other revenue was RMB 30.2 million, a decrease of 17.3%, primarily due to a decrease in technology supporting services that we provided to a newly established equity investee during the same quarter in the last fiscal year, which has since gradually expanded its own back office technology supporting functions. Total costs and expenses were RMB 354.2 million, a decrease of 4.9%, which I will go into more details with you below. First of all, costs of revenue were RMB 60.6 million, a decrease of 17.3%. This was primarily due to a decrease in apparel costs, including a reversal of share-based compensation expenses previously recognized due to headcount optimization, which was partially offset by an increase in IT-related expenses associated with the growth of the live video broadcast business. Sales and marketing expenses came at RMB 145 million, a decrease of 12.8% year-on-year, primarily due to lower spending on user acquisition expenses, as well as the user incentive program. R&D expenses were RMB 56.2 million, down by almost 11%, primarily due to a decrease in payroll costs in line with the decrease in headcount as a result of the headcount optimization. Lastly, the general and administrative expenses were RMB 34.2 million, an increase of 6.6%, primarily due to a decrease in payroll costs, including share-based compensation expenses, which were in line with the decrease in headcount as a result of headcount optimization. During this quarter, the share of the result of equity investee was negative RMB 23.2 million. The net loss narrowed to RMB 120.5 million compared to a net loss of RMB 309.3 million in the first quarter of last fiscal year. The adjusted EBITDA was a loss of RMB 25.3 million compared to a loss of RMB 58.9 million in the same period last year. Adjusted net loss was RMB 42.3 million compared to a net loss of RMB 74.9 million in the same period of fiscal year 2019. The basic and diluted loss per ADS were RMB 1.12 compared to RMB 13.49 in the same period of last year. Going forward, as we continue to focus on the live video broadcast business, we expect the commission revenue to continue driving total revenue, and for our live video broadcast business to grow to account for a more significant portion of our business. So with that, we'd like to open the call for Q&A.

Operator, Operator

Thank you. Your first question comes from the line of Charlie Chen with China Renaissance. Charlie, your line is open.

Charlie Chen, Analyst

Hi, management. Thank you for taking my questions. My first question is about the revenue. I would like to understand a little bit more about the granularity of the growth drivers. So basically the GMV growth is driven by more host hours, more GMV per broadcasting hour or a change of categories. So what is the breakdown of contribution of the GMV growth by each factor, more hours or more units GMV per hour? Can you share with us this information? Thank you.

Shark Chen, CEO

You're correct that over the past 10 quarters, the primary factors driving our live video broadcast business have been the growth in total broadcast hours. Recently, we've also experienced an increase in GMV per hour, which is attributed to enhancements in our live video broadcasting infrastructure, including training, operational efficiency improvements, and supply chain enhancements. Looking ahead, our focus will shift back to increasing the number of active live video broadcast hosts and the total broadcast hours each day.

Operator, Operator

And your next question comes from Ashley Xu with Credit Suisse. Ashley, you may ask your question now.

Ashley Xu, Analyst

Thanks management for taking my questions. Two questions from me. One is that, could we get some guidance on the full-year targets in GMV and revenue growth? Second one is about the take rate because we are disclosing GMV and revenue in different lines. So just want to see how the take rate looks like for live video broadcasting and also for the traditional marketplace? Thank you.

Helen Wu, CFO

Thank you, Ashley for your question. I will take your question. I think from a GMV perspective, to give you an idea for the full year 2020, our live video broadcast business will continue to grow. It has been growing on a year-over-year basis every quarter with this triple-digit growth rate. So this will be maintained even for the FY 2020. And for the overall platform at this stage, we don't actually provide guidance for the overall platform because at the moment we are actually doing the transformation of our marketplace, which will, going forward, be more in collaboration with the live video broadcast. Thus, at this stage, it would probably be premature to give you an overall platform estimate, as going through the transformation will present some challenges and uncertainties. However, for the live video broadcast business, it's pretty much established. We are very confident that for FY 2020, we will continue to deliver triple-digit growth in GMV. And in terms of the take rate, to address your question, we see that the take rate overall has been improving every quarter. We are confident that as we continue to improve operational efficiency, there is still room to increase the take rate in this business.

Charlie Chen, Analyst

Okay. Yeah, management, thanks for taking my questions again. I have a question regarding cash flow. I can see for the past quarter, the P&L numbers seem to be much better than the quarter a year ago. However, the operating cash flow actually was somewhat worse than a year ago, and also investing cash flow seems to be high as well. Can you explain the difference between the P&L and the cash flow? What is the driver for the large amount of cash outflow for this quarter? Thank you.

Helen Wu, CFO

Yes, I'll take that. Charlie, to your question, you can actually look at the operating cash flow, which has improved. I think the investing cash flow is mainly about our investment in short-term securities using cash on balance. That usually offsets each other. So, in investing, we do not have a lot of CapEx in terms of fixed assets, et cetera. The amount is mainly related to the actual inflow and outflows on the capital deployed in short-term investment.

Operator, Operator

There are no further questions. I would now turn the call back over to Christian Arnell for closing remarks.

Christian Arnell, Unidentified Company Representative

Thank you, everyone, for joining the call tonight. If you have any questions or comments, please don't hesitate to reach out to anyone here in MOGU. This concludes the call. Have a good night.

Operator, Operator

Thank you. This concludes today's conference call. Thank you for your participation. You may now disconnect.