BlueCity Holdings Ltd (BLCT) 2021 Q1 法說會逐字稿

Good day, ladies and gentlemen. Thank you for standing by, and welcome to BlueCity's First Quarter 2021 Earnings Conference Call. (Operator Instructions) 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.

Thank you, operator, and hello, everyone. Welcome to BlueCity's First Quarter 2021 Earnings Conference Call. Joining us today are Mr. Baoli Ma, Chief Executive 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 statement 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 RMB.

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 acting CFO, Mr. Junchen Sun, will take over to discuss our financial highlights. Mr. Ma, please go ahead.

(foreign language)

[Interpreted]

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

(foreign language)

[Interpreted]

We kicked off 2021 with a great performance in strategy and operations. This quarter, we achieved a total revenue growth of 30.7% year-over-year to CNY 271.1 million. All app MAUs reached 8.3 million, up 37.5% year-over-year and total paying users increased 47.8% year-over-year to 640,000. This quarter's efforts in diversifying our revenue streams also proved to be very rewarding, with He Health achieving 297.7% growth year-over-year to CNY 12 million, and membership services bringing in 75.9% growth year-over-year to CNY 26.4 million.

We are pleased to see strong growth in all our business lines, which clearly illustrates our strategic execution on product innovation and improving user experience brings in solid topline growth and user engagement.

(foreign language)

[Interpreted]

In addition to our strong organic growth this quarter, as we announced earlier, in April, we officially obtained an internet hospital license for He Health in Mainland China, laying a good foundation for us to build a comprehensive diagnosis and treatment platform for men's health. This marks yet another significant milestone for the Company as it presents a great opportunity to seize in the new and rapidly growing health and wellness industry.

(foreign language)

[Interpreted]

Our CSR platform Danlan Public Interest has been committed to promoting HIV awareness and prevention to a user base of tens of millions in China. In order to meet gapping demands for men's personal health and wellness, He Health was launched in 2019 with a focus on HIV related consultations and merchandise.

Over the past 2 years, He Health services have gradually expanded from sexually transmitted diseases (including but not limited to HIV) to the field of men's everyday wellness, and it has achieved triple-digit growth since launch. This quarter again reached close to 300% year-over-year growth, which not only reflects our great efforts and execution in expanding our user base and our tailored health-related services for men, but also signifies the development of an under-served but a flourishing sector.

(foreign language)

[Interpreted]

According to a Frost and Sullivan report commissioned by us for the Company's fiscal year 2020's annual report, the scale of China's online health consultation as well as online prescription and pharmacy markets is expected to reach CNY 523 billion, equivalent to USD 80.3 billion by 2025, and the size of men's health and healthcare market in China is expected to reach CNY 99.6 billion equivalent to USD 15.2 billion by 2025. We believe that with our large LGBTQ community user base and first-mover advantage, we are well-positioned to capture this enormous industry opportunity.

For a long time, the health needs of men have not been effectively met, with well spread issues like insufficient privacy protection, limited drug purchasing channels and insufficient sex education awareness. We are here to provide solutions with our unwavering commitment to providing a safe and secure oasis to satisfy the needs of the LGBTQ community.

(foreign language)

[Interpreted]

This is an opportunity key for BlueCity making a wider impact and creating more value for our members and society. We want to make a better tomorrow for everyone. Looking further into the future, we will integrate internet hospitals, offline pharmacy chains, health management platforms focused on HIV testing and prevention, sexual health and chronic disease management with general health care services.

Our main objectives for He Health in second half of the year are primarily three sections: Firstly, by the end of this year, coverage for our 2-hour PEP (post-exposure prophylaxis) delivery services will be extended from 40 cities to 100 in China. PEP is a major contributor to He Health revenue, and we expect rapid growth by expanding into more geographical coverage.

Secondly, as domestically manufactured PREP (pre-exposure prophylaxis) medicine kits are more affordable. We foresee a boost in user numbers as we push up our efforts in PREP awareness and promotions. Thirdly, we expect a full rollout of our online Internet hospital services this year in July, a collaboration with doctors and health institutions specializing in men's health.

(foreign language)

[Interpreted]

In this quarter, we also achieved meaningful progress for our overseas business development. We remain committed to customizing our products based on user behavior and the needs of the local community in different regions. After survey showing 65% of our Blued app users in Japan want photo verification features which was firstly introduced in Latin America late last year, we immediately launched that function to ensure a safer and more reliable platform.

Latin America, a key expansion market for us in 2021, also had a positive reception to the voice chatroom function. We launched campaigns with local Latin American KOLs for further promotion, which led Latin American MAU numbers to nearly double since the new version introduced last year and reached a record high in April, with over 10% engagement rate for the voice chat room function.

(foreign language)

[Interpreted]

Moreover, we continued building our global presence and expanding brand awareness worldwide. In this vein, we held a number of online live streaming events for international holidays such as Valentine's Day, Cherry Blossom Festival, Water Festival and more. Each and every one of these live streaming events were a success, attracting a global audience and garnering international visibility.

Moving forward, we fully intend to organize various social events such as the live your pride campaign to celebrate Pride 2021 for global Community building and enhance monetization capabilities.

(foreign language)

[Interpreted]

In Mainland China, we will continue improving our existing products with new and innovative features and services. In the first quarter, new posts and interactions on the community function increased 33% and 42%, respectively, on a quarter-over-quarter basis. This growth was driven by enhancing app algorithms and operations, which we will continue optimizing for user engagement and community health.

(foreign language)

[Interpreted]

Meanwhile, we maintain our commitment to leveraging our product portfolio through investments in technology and marketing. We believe Finka's live streaming service has great monetization potential. Earlier this quarter, Finka held its annual live streaming event "Real Me" with renowned live streamers, one of the primary operation strategies for accelerating brand growth and monetization capacity. Both the engagement rate and paying ratio for live streaming channels nearly broke our records from the pandemic in the same period last year.

Moreover, we are enhancing the analytics of user behavior and will continue to prioritize product innovation and optimization for a continuously improving user experience on all our platforms.

(foreign language)

[Interpreted]

We remain committed to drive LGBTQ awareness. In March, we partnered with UNAIDS on their Zero Discrimination Campaign that aims to end discrimination and inequality in the Asia-Pacific region. Following the campaign, Danlan Public Interest co-produced a promotional video "Would You Discriminate against Me" with UNAIDS, which was uploaded on our Blued app and other social platforms in China. By the end of May, the video was played over 5 million times across all platforms with over 10 million interactions on Weibo.

(foreign language)

[Interpreted]

In addition to building a more diverse and inclusive LGBTQ community, we are also participants in a variety of other social advocate acts and community welfare activities. In April, the "Stray Animals Protection" campaign launched collectively by Danlan Public Interest and Beijing AITA Foundation for Animal Protection was a success on all BlueCity's social platforms, bringing together many from the LGBTQ community. We hope we can make the world a better place, showing those around us the same love, sense of equality and yearning for a better life everyone deserves.

(foreign language)

[Interpreted]

In conclusion, we achieved yet another quarter of solid operational and financial growth, with meaningful progress in all business sectors. We believe our market-leading position, strong executional capabilities, and sound growth strategy will maintain and grow from rapid consumer demand.

(foreign language)

[Interpreted]

Now let me turn the call over to our acting CFO, Junchen, who will provide details on our financial performance.

Thank you, Mr. Ma, and thank you, everyone for joining our call today. As Mr. Ma just mentioned, 2021 is off to a great start for BlueCity, we delivered another strong quarter with encouraging business development and solid financial growth.

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 first quarter of 2021, unless stated otherwise. All percentage changes on a year-over-year basis unless otherwise specified. Detailed analysis is contained in our earnings price release, which is available on our IR website.

Total revenues increased by 30.7% to CNY 271.1 million, driven by better monetization of our diverse services offerings and our favorable revenue mix. Revenue from overseas contributing 10.7% of total revenue, slightly increased from 9.9% in the same period last year.

Total paying users of BlueCity's portfolio apps increased by 47.8% to 640,000. Revenue from livestreaming services was CNY 219.9 million, up 22.4%. As we previously announced that we launched a new live streaming strategy aiming to further drive our user engagement and paying habits which has shown a good progress in the first quarter.

Our quarterly paying users for live streaming services increased 6.3% to 189,000 from same period last year when the paying ratio reached historic high during the peak of COVID-19 in China.

ARPPU was CNY 1,163, an increase of 15.1%, compared to the same period of last year. Notably, in this quarter, our continuous efforts in diversifying our revenue streams are bearing fruits. Revenue from membership services was CNY 26.4 million, up 75.9%. Our quarterly paying users for membership services increased 75.5% to CNY 517,000, while ARPPU was CNY 51, roughly flat compared to the same period of last year.

We expect accelerated growth for our membership services as we continue to enrich and optimize our service offerings. Revenues from advertising were CNY 12 million, up 113.7% as we continued to introduce new advertising and marketing solutions to attract more advertisers. Revenues from merchandise sales of He Health were CNY 11.4 million, up 297.7%. The increase was primarily due to the continuous expansion of our product and service offerings.

As we follow and achieve our 3 main objectives in the second half of the year, we expect He Health to achieve stronger momentum into the future quarters and become the new driver of growth for the company. Cost of revenues increased by 33% to CNY 185.1 million, growing in line with our total revenue. The increase was primarily due to the higher revenue-sharing costs along with the continued growth of live streaming services, the increased cost of products in connection with the growth of He Health merchandise sales, the increased staff cost as well as share-based compensation expenses.

Gross profit was CNY 86 million, up 26.1%. Gross margin was 31.7%, slightly down from 32.9% in the same period last year, but 6.8 percentage points higher than last quarter. As we mentioned earlier, the operational adjustments of live streaming would bring some short-term margin pressure, as we invested more on the supply side of live streaming.

Look forward we expect to gradually reduce the revenue-sharing percentage as we solidify our market leadership and successfully implement the sustainable model for our live streaming service. Meanwhile, we will continue to accelerate the revenue contribution from our membership services with higher margin to achieve overall margin improvement.

Operating expenses were CNY 138.7 million, up 76.3% due to higher marketing expenses, higher staff costs mainly from increased headcount, the increased professional fees as well as share-based compensation. Selling and marketing expenses were CNY 65.3 million, up 69.2% due to higher advertising and promotion expenses, increased staff costs and share-based compensation expenses. Technology and development expenses were CNY 48.2 million, up 59.1%. The increase was mainly due to the higher staff cost in technology-related department, the increase in content, server and bandwidth cost as well as the increased share-based compensation expenses.

G&A expenses were CNY 25.2 million, up 157.5%. The increase was mainly due to increased professional fees and staff costs as well as share-based compensation expenses. Net loss was CNY 52.1 million, compared with a net loss of CNY 7.6 million in the same period last year. Adjusted net loss was CNY 42.5 million, compared with adjusted net loss of CNY 7.6 million in the first quarter of last year. As of March 31, 2021, we had cash and cash equivalents and term deposits of CNY 526.7 million, compared to CNY 611.8 million as of December 31, 2020.

Now let me talk about this year's guidance. We reiterate our revenue outlook of CNY 1.41 billion to CNY 1.46 billion for the full year 2021, representing 37% to 42% year-over-year growth.

That concludes our prepared remarks. Let's now open the call for the questions. Operator, please go ahead.

(Operator Instructions)

Our first question comes from Laura Champine from Loop Capital.

Can you break out the acquired businesses and give us the revenues preferably by segment for acquired businesses and the loss in renminbi from those 2 businesses aggregated in the quarter.

Laura, this is Lingling. Let me translate the question first, okay?

(foreign language)

Laura, this is Lingling, and I will answer your question directly. Actually, this quarter, in total acquired business, LESDO and Finka together contribute around 8% of our total revenue.

So if we look into further details, vast majority of the acquired acquisition has come from Finka's revenue. And for Finka, like we discussed earlier, they have much healthier revenue structure with less than 60% of revenue came from live streaming around 30% from membership services and the remaining part from advertising services.

And for LESDO, the revenue contribution is quite small, and we do not in this stage to disclose the revenue contribution from each segment.

Got it. Can you provide a renminbi loss from Finka and LESDO in the quarter?

Laura, yes. We haven't officially disclosed each business line's profit and loss. But you know when we acquired Finka, Finka is on a breakeven kind of situation, they are profitable, but it's like a single-digit net margin.

And with Finka this quarter, we actually invested more in technology development as well as live streaming cost side. So that's all we can provide at the moment.

Our next question comes from Bo Pei from Oppenheimer.

(foreign language)

[Interpreted]

So I will translate for myself. So I have 3 questions here. First question is about MAU growth. It seems our MAU growth in 1Q was robust. So can you talk about our overseas and domestic MAU growth?

And the second question is, it seems that our live streaming revenue sharing ratio is still relatively high compared with last year same period. So you mentioned you expect the revenue sharing ratio to decrease from here, but can you talk about the magnitude and when that is going to have to happen?

And the third question is about operating expenses. It seems our operating expenses ratio did increase quite a bit this quarter. I know that's because of our investment plan. So can you talk about this trend for the next couple of quarters? That's all my questions.

Thank you, Bo. This is Lingling. I will answer your question directly. In terms of the MAU from overseas, it is around 44% of our total MAUs, because this quarter, we integrated MAUs from our acquired business, which is LESDO and Finka.

Of course, Finka contributes the majority of MAUs. That's the first question. Secondly, in terms of MAU growth, overseas MAUs grew above 30% on a year-over-year basis. And domestically, we still maintain the growth about 20%. In terms of the revenue sharing in live streaming, on a year-over-year basis, we do see a slight increase in percentage of revenue sharing.

But you can see that, as we mentioned during the last conference call, we're doing some adjustments in the life streaming structure, especially the supply side of the live streaming. And that means we are investing more in the cost side. So you can see a rebound in last quarter's revenue percentage sharing.

We are slightly down in this quarter's sharing percentage (added by company after the call) from last Q4. You can see the trend, and we expect that trend will continue into further quarters. On a yearly basis, we're still looking for a slight decrease in the percentage of revenue sharing. Let me give you some more color about this, because you know we disclosed before, we are looking forward to see some dramatic decrease in share percentage of live streaming.

But actually, for Finka, as we just mentioned, we are investing more in Finka's live streaming business and especially on the supply side because Finka, as we said, their user profile is more trendy, more fashionable. So we need to compete with TikTok, Xiaohongshu and things like this, we need to attract high-quality live streamers to go into our platform. So currently, the sharing percentage of Finka is relatively much higher than our original platform, which is Blued. So in this way, it takes all things into consideration, the blended actually sharing percentage will be slightly lower compared to last year.

Okay. Regarding the third question of Opex. The increase in Opex after this quarter can be separated into 2 parts. One is that on a year-over-year basis as we integrate Finka and LESDO. There are additional headcounts from Finka and LESDO, okay? That's over 100 already. So this one actually contribute most of our headcounts increase in the first quarter, Blued also added headcounts as well. And the second thing is for the staff cost, last year during the pandemic, we actually see some savings in the social insurance part. Throughout the whole year last year, we see some savings in staff cost because the government is kind of waiving a certain percentage of social insurance for all of our employees.

So in this way, we can see like additional 2 to 3 percentage points of total revenue sales that is related to the savings in social insurance. That's the second one. So in addition to the increase in staff cost as we disclosed earlier, we are putting more efforts in sales and marketing. So therefore, you can see, the sales and marketing expense is like about 20% of our total revenue, and we expect this rate will maintain relatively the same level throughout the year. And regarding the G&A, recall that the same period last year Q1, we were not a public company. So majority of G&A increase is professional fees related to being a public company. That's why you can see a surge in G&A. It's around 8% of our total revenue. And we think the percentage will remain kind of flattish throughout the year. I hope that answers all your questions.

(Operator Instructions) So seeing no more questions in the queue. Let me turn the call back to Mr. Sun for closing remarks.

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. Operator?

All right. Thank you. So ladies and gentlemen, that does conclude our conference for today. Thank you for participating. You may all disconnect.

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