BlueCity Holdings Ltd (BLCT) 2021 Q2 法說會逐字稿

Good day, ladies and gentlemen. Thank you for standing by, and welcome to the BlueCity's Second Quarter 2021 Earnings Conference Call. (Operator Instructions) As a reminder, we are recording today's call. (Operator Instructions)

Now I'll turn the call over to Lingling Kong, Head of Investor Relations for the company. Ms. Kong, please proceed.

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 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 CSO, Mr. Ying, will take over to discuss our growth strategies. Then, our acting CFO. Mr. Sun will provide details on our financial highlights. Mr. Ma, please go ahead.

(foreign language)

[Interpreted]

Thank you, Lingling, and hello, everyone. Thank you all for joining our earnings conference call today.

(foreign language)

[Interpreted]

We are pleased with the healthy growth across all our business lines. Total revenues grew by 18% year-over-year to RMB 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. Our app MAUs grew by 29.3% year-over-year reaching 8.3 million. More excitingly, the continuous user growth momentum sets a 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. These results fully demonstrate our ability to drive steady and healthy growth through improving monetization capability and outstanding execution.

(foreign language)

[Interpreted]

Another exciting thing in this quarter was 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. As part of the launch, He Health kick-started a wide range of activities aimed for appealing to more users as well as boosting awareness and knowledge of men's personal health. This includes hosting 3 live streaming sessions and allowing users to raise questions on topics such as HIV in a live Q&A with doctors from China's top hospitals and offering users limited-time free one-on-one consultations with special experts. These promotion events were very successful and brought over 50,000 participants in each live streaming session, setting our digital health strategy off a great part with encouraging user feedbacks.

(foreign language)

[Interpreted]

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 our two-hour PEP (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 tripled this quarter once it was on shelves and soon sold out, showing the increasing awareness of HIV protection as well as the huge demand for affordable PREP in China. PREP is an important and useful HIV prevention solution, yet awareness still remains low among at-risk populations in China and elsewhere in the world. We are committed to deepening our 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 society.

(foreign language)

[Interpreted]

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 consultation and awakening HIV awareness, we are well-positioned to capture this enormous industry opportunity with our first-mover advantage and inherent competitive value.

(foreign language)

[Interpreted]

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 #liveyourpride campaign during Pride Month 2021, to advocate inclusivity and diversity as fundamental everyday values. Blued released its new global TV commercials encouraging the LGBTQ+ community to #liveyourpride to kick off the campaign. The campaign featured an online Pride party on the Blued app, a vibrant rainbow app UI and extensive regional activities across the globe. It encouraged individuals from all walks of life and cultures to share their real selves 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 Nightclub" from June 15th to 29th during Pride Month, which combined the app's diverse features to create an immersive, fun-filled experience.

(foreign language)

[Interpreted]

The campaign was extraordinarily successful, attracting over 8 million users and generating over [80,000] (corrected by the company after the call) 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 various social events to further improve our visibility and brand awareness in the global market and enhance monetization capability.

(foreign language)

[Interpreted]

We also continued to accelerate our product innovation and optimize our product offerings and achieved meaningful progress. In June, we upgraded our location-based social networking function on Mainland China edition 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 these added protective measures for user security, the "Private Album" feature ensures that faces do not appear in the album's public thumbnails and access to the album's photos allowed only when the owner gives individuals viewer authorization.

Meanwhile, users can choose to send photos that can disappear within seconds of being read, preventing users from capturing screenshots.

(foreign language)

[Interpreted]

With Finka, we rolled out a new monthly service package which allows subscribers to see visitors to their main page and profile. This new function added efficiency in matching and promoted user interactions. Statistics have shown the paying ratio already exceeded 5% within 3 months after it launched. Moving forward, we will closely monitor our users' responses and remain committed to further optimize user experience across all our platforms.

(foreign language)

[Interpreted]

We remain committed to offering continuous 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 recently rolled out a 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 psychological counseling institutions with years of experience for minority groups to launch the "100-hour free psychological counseling" project for supporting community members in need.

(foreign language)

[Interpreted]

Now let me turn the call over to our CSO, Alfred, who will discuss about our growth strategies.

Thank you, Mr. Ma. And thank you, everyone, for joining our call today. This is Alfred Ying. I joined the company as CSO in July this year. The purpose for my [joining] (corrected by the company after the call) BlueCity is mainly planning for the business future and looking for ways to make a profit when the company maintains sustainable operations. Our long-term strategy is to pursue quality growth. What I define a company with quality growth 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 about our growth strategies. The first is about our business model. We will continue to diversify revenue streams and monetization methods. When we maintain the leading position in the 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 products and services. As our members and community continued to raise the awareness in health and pursue better lifestyle, we expect He Health to achieve stronger growth momentum in the future quarters and become a new driver of growth for the company.

The second is about our product offerings. 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 efforts. In addition to the organic growth from better products via R&D, we are evaluating potential strategic investments and acquisitions in the markets and sectors which have 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 [profitability] (corrected by the company after the call). We are in the process to reassess our business model and measure our operating efficiency by users' lifetime value [(LTV)] (added by the company after the call). While the company was going through the expansion period, we have invested a lot in our products, services, branding, a solid user base and a community for our members. We are now in the right stage to balance between revenue growth and profitability. Therefore, we will not only focus to strengthen our user engagement and increase retention via our products and 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.

So thank you, Alfred. Now let me go through our financial highlights for the quarter. Before I go into details, please note that all numbers presented are in Renminbi 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, which is available on IR website.

Our total revenues for Q2 were CNY 291.9 million, up 18% year-over-year, driven primarily by our growing user base and improved monetization of our diversified service offerings. In this quarter, our total MAUs from all 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, slightly increased from 11.2% in the same period last year. Notably, we also accomplished meaningful progress in diversifying our revenue streams with encouraging year-over-year revenue growth from membership services and He Health this quarter. Revenue from live streaming services was CNY 223 million, up 6.1%. Our quarterly paying users for live streaming services increased 5% to 182,000 from the same period last year.

ARPPU was CNY 1,223, an increase of 1% compared to the same period last year. Revenue from membership services was CNY 33.7 million, up 113%. Our quarterly paying users for membership services increased 82.9% to 599,000, driven mostly from the new service offerings. ARPPU was CNY 56.3, up 16.5% year-over-year, primarily driven by higher ARPPU for our pay-per-use services. These results fully illustrate our future monetization potential for our membership services, and we expect accelerated growth for our membership services as we continue enriching and optimizing our service offerings.

Revenue from advertising was CNY 18 million, up 67.7% with the increase primarily due to our continuous efforts in attracting more advertisers with new advertising and marketing solutions as well as improved advertising efficiency. Revenues from merchandise sales of He Health reached CNY 15.3 million, up 134.5%. We expect He Health to achieve stronger momentum into the future quarters as our priorities in devoting resources to expand our health-related service offerings and geographic coverage remains.

Now moving to our cost. Cost of revenues increased by 12.9% to CNY 192.1 million. The increase was primarily due to the higher revenue-sharing costs along with the growth of live streaming services, increased cost of products in line with the growth of "He Health" merchandise sales, as well as the increased staff expenses. Gross profit was CNY 99.7 million, up 29.9%. Gross margin was 34.2%, up 3 percentage points from the same period of last year, benefited from the increased revenues from higher-margin membership and advertising services. We expect to further accelerate revenue contribution from our membership services to achieve overall margin improvement.

Meanwhile, as revenue-sharing is still the key component 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 CNY 135.9 million, up 64.5% year-over-year. Sales and marketing expenses were CNY 68.9 million, up 68.2%. The increase was mainly due to the increased advertising and promotion expenses as well as increased staff cost and share-based compensation expenses.

Technology and development expenses were CNY 51.6 million, up 64.6%. The increase was mainly due to the higher staff cost in the technology related department, increase in content production, server and bandwidth cost as well as share-based compensation expenses. G&A expenses were CNY 15.4 million, up 49.4%. The increase was mainly due to the increased professional fees and staff cost, partially offset by the decrease in share-based expense due to the stock option forfeitures.

Net loss was CNY 35 million compared with a net loss of CNY 3.3 million in the same period last year. Adjusted net loss was CNY 38.4 million compared with adjusted net loss of CNY 3 million in the second quarter last year. As of June 30, 2021, we had cash and cash equivalents and term deposits of CNY 453.7 million compared to CNY 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 limited monetization progress from overseas market impacted from the economy downturn resulting from the pandemic. Our full year 2021 total revenue is revised downward to the range between CNY 1.15 billion to CNY 1.20 billion, representing a 12% to 16% year-over-year growth. As we follow and achieve our long-term growth objectives, we are still confident in our business model and our ability to bounce back strongly. That concludes our prepared remarks. Let's now open the call to questions. Operator, please go ahead.

(Operator Instructions) The first question comes from the line of Laura Champine from Loop Capital Management.

I wanted to get more information about the slowdown in the live streaming business. What -- 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 variant impact sales or impact revenues.

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 short videos have entered the live streaming business which intensifies the market competitions. The result is that, that increased the share cost of the live streaming somehow they have a negative impact on our revenue. That was the first reason. The second reason was that, as you might know, starting from fourth quarter last year, we adopted new live streaming strategies to try to improve the activity of users for the Tier 2 and 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 through the third quarter as well. So what we are expecting is that the competition in the market will continue. We will 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 a little bit lower than our original expectation.

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?

What we are doing 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 2 services are the ones with higher margins. With that, we think that we can improve not only the revenue contribution from live streaming and also the margin improvement going forward.

(Operator Instructions) The next question comes from the line of Mr. Kevin Hung from Industrial Securities.

I have 2 questions here. First, could you share some color about the geographic distribution of overseas users? And second what's the impact on the company's strategy about the overseas market in the coming expense control from this quarter?

(foreign language)

[Interpreted]

Okay. Let me give you the translations. Our users are mainly in the Asian region, for example, like Korea, Taiwan, and especially in Southeastern Asia, for example, like Thailand, Indonesia, Malaysia and so on. In addition to low user in the 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 lower market with a higher ROI. Meaning that, we are not only looking at the number of users. We are also looking at the contribution, the real contribution from those users in overseas market. We will look at lower market with higher ROI. And also, we will start implementing the metrics for the 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] (corrected by the company after the call) is always one of our strategies going forward. we will implement the strategies for the expense control and look at the [profitability] (corrected by the company after the call) of the company, not only the overseas market in the future.

(Operator Instructions) Seeing no more questions in the queue. Let me turn the call back to Mr. Sun for closing remarks. Sir, please go ahead.

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 on our progress.

Thank you. That concludes the conference for today. Thank you for your participation. You may all disconnect your lines now. Thank you.

[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]