Earnings Call Transcript - MOGU Q4 2021

Operator, Operator

Ladies and gentlemen, thank you for standing by and welcome to the MOGU Fourth Quarter and Fiscal Year 2021 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. I would now like to hand the conference over to your speaker today, Mr. Roger Hu. Thank you. Please go ahead, sir.

Unidentified Company Representative, 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 the Businesswire Services. Before we begin, I'd like to remind you that this conference call contains forward-looking statements within the meaning of Section 21 E 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 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 these 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 otherwise, except as required under applicable law. On the call today from MOGU are Mr. Shark Chen Qi, Chairman and CEO; Mr. Raymond Huang, Chief Strategy Officer and Miss Wu Ting, Financial Controller. Mr. Chen will review the business operations and company highlights followed by Mr. Huang, who will discuss financials. They will be available to take your questions during the Q&A session. Now, it is my pleasure to introduce our Chairman and CEO, Mr. Chen. Please go ahead.

Shark Chen Qi, Chairman and CEO

Hello, everyone. Thank you for joining us today on our fourth quarter and fiscal year 2021 earnings conference call today. During the past quarter, we continue to see consistent and steady growth in our live e-commerce business. The GMV from live e-commerce increased by 42% year-over-year to RMB2.245 billion in the fourth quarter contributing to 87.2% of the total GMV during this period. This demonstrates that MOGU has successfully executed on the transformation of its business and has essentially become a pure play live e-commerce powerhouse. As an early mover in live e-commerce, we have witnessed the advancements in the live e-commerce business in China during the last five years and have established a very differentiated shopping experience for our users. This allows us to continue capturing new growth opportunities in the e-commerce space in China. Continuous innovation is an essential quality in MOGU's culture. After establishing our live e-commerce business in 2016, we have also developed a product feature called short-live which has really begun to make a breakthrough over the past few months. Short-live is basically a short video clip produced by KOLs in MOGU live room and can be distributed as structured and tracked information to a wider audience in public. This information can be searched, structured, categorized, and recommended in the field. Different from the one-off performance in the live show, short-live can have a very long shelf life for consumers to browse and purchase. For our users, short-live has significantly enriched their live mobile shopping experience and has also lowered the entry barriers for new users in our live e-commerce business. Although the user stickiness of live e-commerce is very strong, it's also very time-consuming, representing a higher entry barrier for new users. That's what makes it difficult to improve the penetration rates of live e-commerce in the e-commerce space. Short video is not just a simple recording of product presentation; it also captures the personal moment of the live host and the personal touch on the product feature. For our partners, our short-live product is also a disruptive innovation. Short-live can be easily recorded during the mobile live shows and their production costs are very low. Apart from real-time sales in the live showroom, short-live allows for KOLs to fully extend their sales channels in the long term. Furthermore, short-live also provides an excellent growth path for small and medium KOLs. By leveraging the lower entry barrier for gaining new fans, they can generate stable and considerable revenues from the short-live business. Just a few months after launching this product, we have already seen hundreds of KOLs growing their presence. Our short brand partners can now generate continuous sales volume over an extended period of time in addition to exclusive sales live. We have achieved early success with our short-live product and believe that it will be a breakthrough in the live e-commerce industry. Going forward, we'll continue to expand the ecosystem of short-live and help accelerate our live e-commerce growth. We believe that there will be unlimited possibilities for live e-commerce in the future, and MOGU will be a continuous innovator and a beneficiary of the industry. Thank you.

Raymond Huang, Chief Strategy Officer

Thank you Shark. Thanks again for everyone for joining our conference call today. I will now walk you through our fourth quarter and fiscal year 2021 financials. We believe year-over-year comparisons are the best ways to review our performance. Therefore, unless otherwise stated, all percentage changes I'm going to mention will be on that basis. So, let's review the financials first. Our GMV for the fourth quarter of fiscal year 2021 was RMB2,576 million, an increase of 6.5% year-over-year. GMV for the 12 months period ended March 31, 2021 was RMB13,855 million, a decrease of 18.8% year-over-year. Our focus has been on growing the GMV from live video broadcasting business, which has increased by 42% year-over-year to RMB2.245 billion. Live video broadcasting associated GMV for the fourth quarter of the fiscal year 2021 accounted for 87.2% of the total GMV. Let’s now turn to revenues. During the quarter, total revenues decreased by 23.6% to RMB90.9 million from RMB119 million during the same quarter of fiscal year 2020. Commission revenue decreased by 1.7% to RMB65.2 million from RMB66.3 million in the same period of fiscal year 2020, primarily due to the restructuring of the company's business towards a LVB-focused model. Marketing services revenue, primarily generated through our marketplace business units, decreased by 34.5% to RMB11.9 million from RMB18.2 million in the same period of fiscal year 2020. The decrease was primarily due to the restructuring of the company's business towards LVB-focused business. I will now walk you through our major cost and expense. Cost of revenue decreased by 35.4% to RMB37.9 million from RMB58.6 million in the same period of fiscal year 2020, primarily due to lower online direct sales costs. Sales and marketing expenses decreased by 44.5% to RMB43.4 million from RMB78.2 million in the same period of fiscal year 2020, primarily due to optimized spending on branding and user acquisition activities. Research and development expense decreased by 40.3% to RMB19.6 million from RMB32.8 million in the same period of fiscal year 2020, primarily due to the optimization of headcount. G&A expense increased by 124.4% to RMB25.7 million from RMB11.5 million in the same period of fiscal year 2020, primarily due to the reversal of share-based compensation expense in the fourth quarter of fiscal year 2020. Amortization of intangible assets decreased by 5.7% to RMB82.1 million from RMB87.1 million in the same period of fiscal year 2020. Loss from operations was RMB110.3 million compared to a loss from operations of RMB149.1 million in the same period of fiscal year 2020. Net loss attributable to MOGU's ordinary shareholders was RMB108.6 million compared with a net loss of RMB141.9 million in the same period of the year 2020. Adjusted EBITDA was RMB20.1 million compared with negative RMB83.6 million in the same period of the year 2020. Cash and cash equivalents, restricted cash and short-term investments were RMB803.1 million as of March 31, 2021 compared with RMB1,095.4 million as of March 31, 2020. Let's now move the financials to the entire fiscal year of 2021. Total revenue came in at RMB182.4 million, a decrease of 42.3%. Commission revenue came in at RMB318.6 million, a decrease of 27.3%. Marketing services revenue came in at RMB71.3 million, a decrease of 70.6%. The overall decrease was primarily due to the company's restructuring or transformation of its business towards the LVB-focused model. Cost of revenue decreased by 37.7% to RMB183.1 million. Sales and marketing expense decreased by 62.5% to RMB229.8 million primarily due to optimized spending on branding and user acquisition. R&D expense decreased by 39.5% to RMB103.5 million. G&A expense decreased by 19.6% to RMB103.0 million. Loss from operations was RMB428.9 million compared with the loss of operations of RMB2,072.9 million in fiscal year 2020. Net loss attributable to MOGU's ordinary shareholders was RMB328.0 million compared with RMB2,223.6 million in fiscal year 2020. Adjusted EBITDA was negative RMB51.5 million compared with negative RMB320.1 million in fiscal year 2020. Our net loss and adjusted EBITDA improved remarkably by 85.3% and 83.9% respectively, showcasing the positive effects from our efforts to optimize customer acquisition and operational efficiencies. By the end of fiscal year 2021, we reached a major milestone in the execution of our strategic transition to a live video broadcast e-commerce company. Our breakthrough in short video further expands our live video broadcasting ecosystem, and is a new revenue growth generator. Going forward, we'll continue to execute on our disciplined approach in terms of customer acquisition, and we'll partner with more capable and innovative KOLs so that they can deliver the best products and shopping experience to our consumers.

Operator, Operator

Your first question comes from Sabrina Hu from Jeffries. Your line is open. Please ask your question.

Sabrina Hu, Analyst

Thanks management for taking my questions, I have two questions. The first one is how should we see the competitive landscape going forward in the short video platform step-up efforts in live streaming e-commerce? The second one is how should we see the live streaming e-commerce growth rate this year for the best industry in MOGU, where the new form short-live goes to the revenue curve? I’ll translate myself.

Unidentified Company Representative, Company Representative

Sure. So, I'll answer the question directly in English. Yes, number one, speaking of competition, of course, we are seeing that the e-commerce space in China is extremely competitive. But we do believe that Chinese consumers are very, very demanding. They are always asking for more innovative, more interesting, and more interactive ways to shop. China is becoming a very strong country with a very open society. Our shoppers have many options; they're not just going for the cheapest products or massive products. They're actually asking for different shopping experiences. That's why MOGU will stay very focused on product innovation to give our consumers the best experience. We believe that our KOL partners know our consumers the best; they can find the best products that suit our consumers and they can deliver the best experience. Speaking of maybe other competitors, we are seeing that other short-video platforms are very strong in traffic and entertainment content. But we are a live e-commerce platform, which is the fundamental difference between us. We believe we can provide a more holistic shopping experience in terms of reform, return, quality control, and authentic brands. All of these are very important elements when consumers make a purchase decision. That's why we're different from short-video platforms and compared with other big shopping platforms, we're very much focused on the human element. We want our KOLs to become the front page of our shopping experience so that they can interact with our consumers. Instead of people going to a certain platform and searching for products, they will connect with our KOLs to buy whatever product our KOLs think is suitable for them. This basically differentiates us from other shopping platforms. Our users, as you can see from the retention data, are showing their vote of support for our platform. The second question is about short-live and revenue. We have a view that short-live is a very important product feature that can help all KOLs grow faster on our platform. All suppliers can benefit from the growth of KOLs. Our consumers will be attracted to us because of the diversified and massive supply of KOLs and the products behind them. We believe this is a very important growth engine for us in terms of users and KOLs. Over time, our supply and experience will diversify, and therefore revenue or any financial numbers will follow that. When we examine the competitive landscape, we also consider our internal reasons. Our dedication to live e-commerce and our extremely efficient operation is a key differentiating factor. We know that e-commerce is a complex system, and everyone needs to work around the system to ensure it doesn’t fall apart. Live e-commerce is even more challenging. Our live e-commerce is now accounted for 87% of our total GMV; we are now effectively a pure play live e-commerce company. We have been dedicated to the live e-commerce segment for a long time, and our investments and dedication in this area will definitely pay off. Our focus on live e-commerce is a big differentiating factor that sets us apart from competitors. Short-live is the fruit of our dedication in this segment, and without this level of commitment, we wouldn't be able to innovate a product like this. We believe this is a major breakthrough in the live e-commerce industry in China.

Operator, Operator

Your next question comes from the line of Charlie Chen. Your line is open, please ask your question.

Charlie Chen, Analyst

The question is about the ROI of short-live versus live, in terms of incorporating different factors, including user interaction in the showroom, and how many times we can repeatedly use the live short-live video? So, the company's answer is, yes, that's a very good question. Short-live is meeting the user interaction, which is now the best part of the format. Our users tend to find better user interaction in the live showroom, which is where most of the interaction happens and where the immersive and interactive experience takes place. However, the advantage of the product is that it can be reused indefinitely. We are seeing that our hosts can record a short-live from last year; some of them can still be viewed by our audience. People are still purchasing items introduced or represented 12 months ago. So, it has a very long shelf life. Users can always revisit the product and make a purchase. Therefore, the return on investment or the sales generated per SKU or short-live is very high. Speaking of interaction, short-live shows all previous product reviews posted by buyers. In live, users cannot see all user reviews simultaneously because the product is new. But in short-live, because it has a long shelf life, users can see all reviews from previous buyers and make a more informed decision. Thus, the conversion rate, supported by reviews from previous buyers, is improved significantly.

Operator, Operator

Your next question comes from the line of Locky Lau. Please ask your question.

Locky Lau, Analyst

Locky’s question is about the generic growth for the last quarter and for the quarter going forward.

Unidentified Company Representative, Company Representative

As Sabrina mentioned earlier, the e-commerce situation in China is extremely competitive. Last year, e-commerce showed rapid growth in terms of sector growth, so it's also highly competitive. At this point, we wouldn't be able to provide forward guidance on the GMV growth, but we believe that the live streaming e-commerce segment has very high potential and we're only at the beginning. We are optimistic and positive about this area, so we'll continue to invest in live e-commerce to capture opportunities going forward.

Operator, Operator

There are no further questions at this time. You may continue.

Unidentified Company Representative, Company Representative

If we don’t have further questions, we can end the call today. Thank you everyone for joining the conference call. We look forward to seeing you next quarter.

Operator, Operator

This concludes today's conference call. Thank you for participating. You may now disconnect. Presenters, please stay on the line.