BlueCity Holdings Ltd (BLCT) 2020 Q4 法說會逐字稿

Good day, ladies and gentlemen. Thank you for standing by, and welcome to the BlueCity's Fourth Quarter and Full Year of 2020 Earnings Conference Call. (Operator Instructions) As a reminder, we are recording today's call. (Operator Instructions)

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 Fourth Quarter and Full Year 2020 Earnings Conference Call. Joining us today are Mr. Baoli Ma, Chief Executive Officer; and Mr. Ben Li, 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 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 CFO, Mr. Ben Li, will take over to discuss our business and 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. We had an exceptional year in 2020. Despite the challenging COVID-19 environment, we remained focused on our growth strategy and achieved encouraging results.

(foreign language)

[Interpreted] First, our NASDAQ IPO was a remarkable milestone on our long journey. Since founding our predecessor, Danlan website, over 20 years ago. We have prepared for the recognition and social acceptance of the LGBTQ community. Being a public company will further broaden our user base and help us to connect with the LGBTQ community globally. We believe we can make a wider and meaningful impact in the world, with our unwavering goal to create value for society, promote diversity, and foster a sense of belonging for our members.

(foreign language)

[Interpreted] Second, we demonstrated the strength of our portfolio strategy. We can pull different levers quickly, which makes us agile and able to grow faster. For instance, we acquired and quickly integrated LESDO and Finka into our operations. Leveraging our experience and technology, those acquisitions strengthened our leadership position in the LGBTQ community.

After acquiring LESDO in August, we quickly introduced a new version in Q4. As a result, by February of this year, LESDO's MAU increased 3.1x since the acquisition. Meanwhile, Finka's MAU reached a historic high of 730,000 in December, representing 15% growth in 1 month since acquisition. In the fourth quarter of 2020, our total monthly active users of our portfolio apps reached 7.6 million.

These 2 acquisitions were the beginning of our multi-brand, multi-demographic strategy. They enabled us to leverage and optimize our technology and operating system to support each unique recognizable brand and provide differentiated services in each specific group of our community. We intend to accelerate the growth of each brand and believe they will soon make meaningful revenue contribution.

(foreign language)

[Interpreted] Third, we regularly evaluate and adjust our global expansion strategy based on the geopolitical situation and local community readiness. In each region, we customize our offering according to user behavior and the needs of the local community. For example, we introduced a major update to the Blued mobile app in Latin America, which generated positive feedback from local users. By February 2021, MAU had doubled since the launch of the new version, reaching record highs in both Mexico and Brazil. Looking ahead, we will continue to introduce more localized and diversified services tailored for the local community.

(foreign language)

[Interpreted] Fourth, we improved our organizational structure in order to maximize our operation efficiency and productivity. Starting from 2021, we reorganized our company from a functional structure to a business unit oriented structure. This will enable our BU leaders react quickly to the dynamic changes in the online social networking industry and the LGBTQ community. And more importantly, it will further accelerate our product innovation and optimize our product offerings.

Furthermore, we attracted and retained great talent to support this new organizational structure. We hired 2 new Vice Presidents with 10 years of experience focused on Internet-enabled products, user growth and global expansion. They will lead domestic and overseas business, respectively, and manage the whole operation together. We look forward to working with them closely and benefiting from their valuable insights and extensive experience.

(foreign language)

[Interpreted] Finally, I want to mention our efforts in corporate social responsibility, or CSR, which is one of the most important aspects of our culture. Since our founding, we have been dedicated to creating value for society and promoting diversity. In July last year, we were honored to be ranked as one of China's top companies for corporate social responsibility, as compiled by the China CSR Research Center.

More recently, I'm excited and honored to be the first person from China Mainland to be recognized on the "Outstanding 100 LGBT+ Executives List" from INvolve, a global network and consultancy championing diversity and inclusion in business.

These remarkable accomplishments demonstrate our commitment to CSR. We want to make a better tomorrow for everyone, and we believe our greatest impact on the world will come from our growing global presence and associated CSR efforts.

(foreign language)

[Interpreted] Now let's move on to our growth strategy in 2021. For years, we have consistently executed our long-term strategy. Let me give you some updates on our latest thinking.

(foreign language)

[Interpreted] First, we continuously enrich our products and service offerings to engage and cultivate our community more deeply. We are committed to build our Blued app as a comprehensive community platform through offering more video content and promoting community function to drive up engagement, making the livestreaming model more attractive through innovation and offering more options for membership services.

With LESDO and Finka, we are investing heavily in technology and marketing and leveraging on the strength of our product portfolio to expand our user base and achieve faster revenue growth. Domestic growth is the first pillar of our growth strategy.

(foreign language)

[Interpreted] Second, we are expanding business overseas. We are in the early stage of global expansion, which leaves us plenty of room to grow. We will drive growth through entering new markets and strengthening our leadership in existing markets, such as Latin America, which is a focus for 2021. We will continue to localize product offerings and run various online and offline events to quickly attract users.

We further accelerate monetization in mature overseas markets through well-managed live streaming operations and better pricing of membership services. In addition, we see a huge potential for Finka to expand overseas because the product is more appealing to younger generations, and we hope we can achieve meaningful progress in the second half of this year.

(foreign language)

[Interpreted] Third, we are pivoting our services strategy from family planning to strictly health-related products and services. The family planning business never gained great traction, while health-related services centered on HIV prevention and treatment have huge potential. We believe He Health, our well-recognized health-related service can be the engine for our next phase of growth.

In Q4, revenue from He Health increased more than 8x year-over-year, reaching RMB 11.4 million. We intend to obtain an internet hospital license and build a comprehensive diagnosis and treatment platform for men's health.

(foreign language)

[Interpreted] Now let me turn the call over to our CFO, Ben, who will provide details of our business and financial performance.

Thank you, Mr. Ma, and thank you, everyone, for joining our call today. For the fourth quarter, total revenues were RMB 278.8 million, up 24.2% year-over-year. We remain committed to enhance our monetization capability and diversify monetization methods in order to generate sustainable growth. We are pleased that our revenues from membership services and He Health continued to achieve robust growth in this quarter.

Monthly average users on the Blued app grew by 12.5% year-over-year, reaching 6.6 million, out of which 47% MAUs were from overseas. Monthly active users on our non-Blued apps reached 980,000. DAU over MAU for this quarter on the Blued app remained stable at 44%. Total paying users on the Blued app were 518,000, up 37.9% year-over-year.

In addition to our solid financial growth, we also made meaningful progress in product innovation. We launched a voice chat room function on the Blued app in Mainland China. Users can join chat rooms to have real-time, community-focused audio conversations with other members based on their preferred language, friends and interests. We believe this function will resonate with users and expect a full roll-out sometime in April.

Meanwhile, a separate voice-based app called BooYin for our community users is expected to launch by mid-April. Together with a community feature and catch function we introduced last quarter, we have been relentlessly devoting resources to product innovation that improves the user experience and deepens the bonds of our community.

We continue to drive LGBTQ awareness. A recent example was the "Let Love Go Home" campaign launched to coincide with the typical family reunion activities of the Chinese New Year holiday. This campaign helped our community members to find a greater sense of belonging at home and cultivate more acceptance from family, thus bridging the gap between generations.

On January 30, we livestreamed an online roundtable session between an openly gay influencer and his mother, who together candidly discussed his experience in announcing his self-identity. In March, we also partnered with UNAIDS on their Zero Discrimination campaign that aims to end discrimination and inequality in the Asia-Pacific region.

BlueCity brands such as Blued, LESDO, Finka, He Health and Danlan Public Interest together voiced their opposition to prejudice of all kinds, especially that based on sexual orientation and gender identity. The campaign was executed using a combination of themed posters, interviews with experts, live broadcasts, and short videos.

These successful events increased our visibility and strengthened our dominant leadership in the global LGBTQ community. Going forward, we will organize and participate in a wider variety of social and public events to promote LGBTQ awareness around the world.

Finally, I want to note our enhancement of corporate governance. We are currently upgrading our ERP system with Oracle EBS, which streamlines business process, facilitates information flow between all business functions and finance reporting based on a well-designed control infrastructure. We expect this project to be completed in the first half of this year, and it will improve our overall efficiency and integrity of financial reporting.

Now I will go through our financial highlights for this quarter. Before I go into details, please note that all numbers presented are in RMB and are for the fourth quarter of 2020, 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 our earnings release as well as our IR website.

Total revenues increased by 24.2% to RMB 278.8 million, driven by better monetization of our diverse services offerings. Revenue from overseas contributing 9.5% of the total revenue, increased from 5.1% in the same period last year.

Quarterly paying users on the Blued app increased by 37.9% to 518,000. Revenue from livestreaming services was RMB 223.9 million, up 18.7%, mainly due to more paying users and higher average spending per user on livestreaming services. Our quarterly paying users for livestreaming services increased 8.6% to 144,000, while ARPPU was RMB 1,550, an increase of 9.0% compared to the same period of last year.

In the fourth quarter, we launched a new livestreaming strategy that drives the engagement in large group of our mid-layer and long-tail users with limited spending power, such as promoting new features to enhance participation and developing more first-purchase incentive features to cultivate paying habits. This new strategy complements our current high-spending program and provides differentiated and diverse options to different cohorts of users. On the supply side of livestreaming, we are inviting more talent agencies and promoting more individual live streamers to join our talent agencies.

Those initiatives create a good ecosystem for consistent improvement in producing higher quality diversified content and in turn, to attract and retain our users. Those adjustments of strategy brought temporarily pressure on our short-term performance of livestreaming services, but we believe the strategy provides holistic solutions and would pave the way for a more sustainable model, which can be exported to our overseas market and other product portfolios.

Revenue from membership services was RMB 22.2 million, up 46.5%. Our quarterly paying users for the membership services increased 51.5% to 415,000, while ARPPU was RMB 53.6, roughly flat compared to the same period of last year. We expect accelerated growth for our membership services as we drive monetization efforts in both domestic and overseas markets.

Revenues from advertising were RMB 19.0 million, up 35.4%. Other revenues were RMB 13.7 million, up 108.7%, driven by growth in He Health merchandise.

Cost of revenues increased by 29.0% to RMB 209.3 million. COGS is composed mainly of revenue-sharing costs and commission costs. The increase in COGS was primarily due to 2 reasons. First, the seasonal effect, We usually share higher incentive to streamers during our year-end events. Especially for this year to celebrate our successful IPO, we offered an even higher year-end bonus to our best-performing talent agencies and live streamers as a special thanks.

Second, as we mentioned, the new strategy that we launched in livestreaming services, which resulted in higher cost. However, we believe it will generate higher lifetime value and increase transaction volume and frequencies. We expect those investments will be paid off in the second half of 2021.

Gross profit was RMB 69.5 million, up 11.8%. Gross margin was 24.9% as compared to 27.7% in the same period last year. The year-over-year decrease in gross margin was mainly due to the relative slower growth of livestreaming service revenue and the one-time livestreaming related costs incurred for this quarter.

Operating expenses were RMB 143.6 million, up 82.5% due to increase in selling and marketing expenses and staff salaries and IPO-related share-based compensation. Selling and marketing expenses were RMB 49.7 million, up 56.7% due to higher advertising and promotions in overseas markets and increased headcount in sales and marketing personnel.

Technology and development expenses were RMB 37.3 million, up 9.0%. The increase was mainly due to the increased staff costs in technology and development personnel. G&A expenses were RMB 56.5 million, up 345.5%. The increase was mainly due to share-based compensation expenses as well as the increased professional fees and staff costs.

Net loss was RMB 73.1 million, compared with a net loss of RMB 7.2 million last year. Adjusted net loss was RMB 36.0 million, compared with adjusted net loss of RMB 15.0 million last year. For the full year of 2020, our total revenue increased by 35.9% to RMB 1.03 billion, driven by the increase in the total paying users of our online services and the diversity of our revenue streams.

Gross profit was RMB 311.0 million, up 46.2%. Gross margin was 30.2%, improved by 2.2 percentage points from 28.0% in the same period last year. The increase in gross margin was mainly benefited from the reduced livestreaming revenue sharing percentage and the higher revenue contribution from membership service.

Net loss for 2020 was RMB 221.9 million, compared with net loss of RMB 52.9 million in 2019. The increase was primarily due to share-based compensation expenses related to the IPO. The adjusted net loss for 2020 was RMB 39.8 million, narrowed from the adjusted net loss of RMB 52.9 million in 2019.

As of December 31, 2020, we had cash and cash equivalents and term deposits of RMB 611.8 million, compared to RMB 380.3 million as of December 31, 2019.

Now let me talk about next year's guidance. We expect our revenue outlook of RMB 1.41 billion to RMB 1.46 billion for the full year 2021, representing a 37% to 42% year-over-year growth. However, the year-over-year growth for the first quarter of 2021 will remain relatively slower, primarily due to our newly adopted new livestreaming strategy, as well as the large increase in the number of paying users in the first quarter 2020 during the COVID-19 outbreak, which resulted in an unexpected revenue growth. We expect the robust revenue growth will resume in the second half of 2021.

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

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

My first question is about the changes to livestreaming. Could you be more specific on what the expenses were related to those changes and in what way do you expect that to increase lifetime value of your livestreaming customers?

Shall I translate to Mr. Ma first? Okay. The question -- (foreign language)

(foreign language)

[Interpreted] Okay. Laura, there are 3 points regarding to your questions. The first one is that actually comparing to the percentage of revenue sharing with talent agent, usually the ordinary streamers share a lower percentage. And we intend to increase the engagement from the ordinary streamers, and in turn that will attract more users to join our platform and hopefully, we can improve the number of paying users in the channel.

The second is that actually, we are inviting more agent talent to join our platform. Currently, we have quite limited number of talent agencies on our platform, and we are going to invite more talent agencies to provide more kind of professional and high-quality content on our livestreaming platform.

The third is that from the revenue side, actually, the revenue are recorded from the paying users, virtual gifting. And we intend to launch new features to the streamer side, generating the revenue from streamer side, which through our platform, they can purchase like promotion tools to increase their traffic to their own channel. Yes, that's the 3 points.

And last question on the launch of your business in Latin America, how will that compare in terms of an initial push compared to your launches outside of China into other Asian countries?

Laura, I'm sorry. We are not quite following you clearly. Can you repeat that question?

Sure. Your initial advertising spend or your initial launch spend to launch Latin America, how will that compare with your initial spend when you launched BlueCity's apps outside of China into other Asian countries?

Thanks, Laura. I will translate your question. (foreign language)

(foreign language)

[Interpreted] Okay. I will translate Mr. Ma's answers. The first, Laura, actually, for every new app entering into new markets, the initial launch is always the most difficult part, okay? And we intend to spend more on the initial launch. And after that, once we gained the reputation, we can easily spread our brand and to attract users through word of mouth. As we are in the leadership position in Southeast Asia, and we can quickly leverage on the marketing channels into Latin American market. Actually, the marketing channels are quite similar to the Southeast Asia market. We usually tend to use Facebook, Google channels as well as running offline events with local agencies.

In terms of the average spending, we see that it's kind of mid-layers in the middle between our high net wealth countries such as Japan and Korea, it's like the middle range.

Your next question comes from the line of Bo Pei of Oppenheimer.

(foreign language) I will translate for myself. So I noticed our revenue growth slowed down slightly in 4Q, but our 2021 guidance implied a growth acceleration this year. So just wondering, can you talk about the growth strategy this year? Especially for He Health, you mentioned it's going to be our second growth engine. So can you talk about the required investment in this business? And can you also talk about to achieve the revenue growth in our guidance, what else -- investments do we need to do for this year?

And then my second question is about our M&A strategy. Can you also talk about our M&A strategy this year compared with last year? And then where will our target, for example, is it in China or overseas market to expand our international footprint?

(foreign language)

[Interpreted] So for the first question regarding the growth strategy in 2021, I will answer this question in 4 parts. First is the monetization opportunity overseas, and we see a great potential in overseas market, especially in livestreaming and membership services. Before that, we are in the very early stage of monetization overseas, and we will enhance the operations in livestreaming and provide more membership service products and offerings to cultivate the paying habits of overseas users. Therefore, we see a huge potential of revenue growth overseas.

Second is the revenue contribution from Finka. After like 3 months of integration with Finka, we found that there is still plenty of room to grow for Finka's business, especially in livestreaming and membership services. We found that, based on Finka's user profile, they have a higher willingness to pay for high-quality services. Currently Finka's revenue structure tend to be more healthier. It's like more than 30% from livestreaming, around 30% from advertising and another 40% from membership services. Therefore, that leveraging on our financial support and technology support, we will offer more features in livestreaming and in membership services to drive our paying ratio of Finka users.

Third is that we continue to see there is huge growth opportunities in Blued membership services. As you know that membership services is a recurring revenue and have higher gross margin. For Blued membership services, we will offer more interactive features, we will add more features behind the paywall, try to cultivate our users' paying habits and, in turn, increase the paying ratio of our users.

Fourth and the latest is our He Health strategy. He Health -- internally, we position He Health as [Hims Plus]. It's like that He Health will be our new growth driver for our recent years. First, the opportunity for He Health is huge. That would start from providing HIV-related services, and then we can quickly expand that service scope into more health privacy related services and into well-being of men's health.

And we see that through the partnership with pharmacies, we can easily take leverage on the pricing negotiations, and we see that. And right now, we are going to obtain the internet hospital license in the near future. And we are pretty confident that we can build a comprehensive men's health platform and ramp up that business very quickly.

(foreign language)

[Interpreted] Well for your second question -- sorry, let me translate that answers first. And first step, based on our mission, is that we tend to be a comprehensive lifetime provider for the LGBTQ community. So we choose our acquisition target more carefully. We tend to choose the target share the similar vision with us. And through that, we keep active dialogue with our potential acquisition targets in America, Japan and Europe, keep a good dialogue with them and seek for any opportunities so that we can work closely together through partnership or other forms of M&A.

Your next question comes from the line of Brian Li of AMTD Global Markets.

Congrats on your solid fourth quarter results. My question is about the 2 successful M&A deals last year. As you have included the MAUs in the latest report, so could you please add more color on the integration plans? And when will you expect the company can benefit from the synergy achieved on the M&A deal? (foreign language)

(foreign language)

[Interpreted] Thank you for your question, Brian. And let me just a simple translation here. Actually, we're quite pleased with the integration of Finka and LESDO. You can see that the MAU growth of Finka and LESDO are very encouraging, okay? You can see that in our script. And we haven't disclosed the latest MAUs of Finka. It's reached even higher compared to the end of last year.

So it's like that our portfolio strategy has proven to be right. And through our portfolio strategy, we can serve more users, we can extend our user base. And each of our product portfolios will position them quite differently, try to serve more different group of users. For example, we will quickly launch another voice-based app called [BooYin] and to try to cover more users who like to use the voice-based app.

So internally, we aim to be the match group in the LGBTQ community, and we are trying to launch more new apps or new features, try to cover and serve more different groups within the LGBTQ community.

Your last question comes from the line of Austin Moldow of Canaccord Genuity.

Within livestreaming, can you talk about which products have the most meaningful revenue contribution currently? And what new products have the most potential for growth going forward?

Thank you, Austin. Nice to hear you again. This is Ben, and I will do the translation to Mr. Ma first. (foreign language)

(foreign language)

[Interpreted] Austin, this is Ben. I will just do the translation myself, okay? Mr. Ma, just to explain that, for existing revenue pie that apart from the live streaming, he or the management deems that the membership services revenue is actually taking a very majority -- important role for now. And for future, the most potential impactful revenue service pie contributor is coming from the health-related services, Austin.

(foreign language)

[Interpreted] Regarding the so-called health-related services, actually, it's mainly related to private treatment for men here in China. So currently, we do see the HIV-related treatment for the exposure prophylaxis and post treatment, et cetera. Actually, that -- the HIV community here in China, we had our internal analysis, is around 1 million population. So we do see it is going to be a huge -- because people have to taking lifetime drugs to get a qualified treatment.

So we do see it is going to be a recurring revenue and the best entry port for us to get into there. Not to mention that HIV treatment is only a start for the private treatment for men here in China and also other demand from men like the hair issue, like the sexual malfunction issue, et cetera, Austin.

Just following up a little bit. What livestreaming products drive the most livestreaming revenue? And what are some new livestreaming products you're excited about?

Interesting question. I would do my translate. (foreign language)

(foreign language)

[Interpreted] Austin, we have to say this so-called virtual gifting model for livestreaming is kind of existing for years. So we keep innovating by developing new features, trying every effort to figure out what to do to better leverage our position for live streaming revenue service contribution to our revenue pie.

And what Mr. Ma explained, only 1 example is that -- that's to minor. Okay. I'll explain because his earlier speech was also mentioned that, currently, our revenue mainly from the people who purchase the virtual gift on platform, right? So actually, sooner or later, we are going to develop a new feature that actually the live streamers might purchase some services, features from the platform. So basically, we are telling you that we are going to just not doing the monetization from the viewers, audience side, but also from the live streamer side. That's number one.

Number two, Mr. Ma, just to add that for example, we're going to create some interesting functions like taking the room number, you know how important room number is for a lucky trial here in China, right? #6, #8, meaning luck, et cetera. So we are going to develop something like that, so, taking an example. So we keep innovating from time to time, yes, Austin.

That's very helpful. My last question is regarding competition. When you launch into new overseas markets, for example, in Latin America, where you're focusing in 2021, do you typically find 1 or 2 well-entrenched competitors that are already there? Or is it typically a very fragmented market that doesn't have any scaled competitors of note?

That's easy answer. But anyway. (foreign language)

(foreign language)

[Interpreted] Yes, sure. Austin, actually, in Latin America, there are only 1 named, actually the famous U.S. based competitor of us already there. And due to the population, Latin America has a large population over there, and also the user behavior, that product was kind of very popular already on site. So basically, as a latecomer, we enter into those new markets, we have to deal with it very carefully starting from a market analysis. We interview, we engage with third-party consultant to understand the user behavior and engagement based on those local players and the local users in a general manner. And also, we identify those gaps, the demands of the users locally have not been satisfied by the existing player.

So back to your question directly that there are only 1 meaningful peer in Latin America market. Yet, still, there is some demand. We do see a huge opportunity. We could do something meaningful over there in general, Austin.

Okay, I think that's all, operator.

We're at the end of this call. If you have more questions, please contact us by e-mail directly. Thank you. Let me turn the call back to Mr. Li 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.

Ladies and gentlemen. This concludes today's conference call. Thank you. You may disconnect your lines now.

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