BlueCity Holdings Ltd (BLCT) 2020 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the BlueCity's Second Quarter 2020 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 Second Quarter 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 proceed, please note that this call may contain forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on management's current expectations and observations that involve known and unknown risks, uncertainties and other factors not under the company's control, which may cause actual results, performance or achievement of the company to be materially different from the results, performance or expectations implied by these forward-looking statements.

All forward-looking statements are expressly qualified in their entirety by cautionary statements, risk factors and details of the company's filings with the SEC. The company does not assume any obligation to revise or update any forward-looking statements as a result of new information, future events, changes in market conditions or otherwise, except as required by law.

During today's call, management will also discuss certain non-GAAP financial risk measures for comparison purpose only. For definition of non-GAAP financial measures and a reconciliation of GAAP to non-GAAP financial results, please refer to our 2020 second quarter financial results news 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. Finally, our CFO, Mr. Ben Li, will kick over to discuss our business and financial highlights.

Mr. Ma, please go ahead.

(foreign language)

[Interpreted] Hello, everyone. Thank you for joining our second quarter 2020 earnings conference call today. We are thrilled to host our first call as a public traded company. Our successful IPO was a significant milestone in our long journey, which raised capital for growth and significantly increased our visibility. We are one of the world's leading providers of online services to the LGBTQ community, a huge market.

According to Frost & Sullivan, in 2018, over 450 million people worldwide self-identified as LGBTQ. We are dedicated to providing comprehensive lifetime services that satisfy the needs of our members.

Our product and services include location-based social networking services to create a safe online community; AI-based live streaming services to make more personalized recommendations to members with interactive features; health-related consulting services and products that keep our members informed and healthy; family planning services that help our members starting their family journey; and public interest initiative to fund HIV research and prevention.

As of June 30, 2020, our Blued mobile app had approximately 54 million registered users. Global monthly active users for the quarter reached 6.4 million, an increase of 11.2% year-over-year. Being a public company will further broaden our user base and help us to connect with the LGBT community globally.

We are starting to make a wider impact in the world, and we believe our passion and execution capability will enable us to achieve profound success in the future.

(foreign language)

[Interpreted] Our commitment to connect and serve specific groups within the LGBT community is demonstrated by our recently completed acquisition of LESDO, a leading location-based social networking service provider servicing the lesbian community in China. Lesbian is an important subgroup within our community. With nearly 200 million lesbian globally, it's 38.5% of the LGBTQ population.

In China, the lesbian market is fragmented with many small service providers lacking the ability to do sustainable product development or provide consistent services. LESDO represents a great opportunity for us to enter and consolidate the lesbian market. We will continue to enhance and improve services and deepen the connection within the community. A key element of our growth strategy is to establish a multi-brand platform that connects and serve multitudes of groups within the LGBTQ community. LESDO is our first strategic move to execute this element of our strategy.

(foreign language)

[Interpreted] As we expand our business globally, our initiatives overseas are prudent. We evaluate market readiness, local market size and geopolitical influences before market entry. We believe the overseas market opportunity is huge, but we will selectively expand only to markets that meet our strategic criteria. Meanwhile, we will continue to strengthen our leading position in existing markets and improve our monetization capabilities.

Last but not least, we are proud to be ranked among the top companies for corporate social responsibility, or CSR. Since day 1, CSR has been rooted in our brand DNA, and it's an important aspect of our culture. We encourage you to read our first ESG and CSR reports, which we issued this month. Those 2 reports outline our commitment to social responsibility and sustainable development.

(foreign language)

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

Thank you, Lingling. Thank you, Mr. Ma. And thank you, everyone, for joining our call today. As Mr. Ma just mentioned, we successfully completed our NASDAQ IPO, raising approximately USD 85 million in gross profit.

Our solid cash position gives us extra strength and flexibility to expand into new selected markets, address new groups within the broader LGBTQ community via acquisition and investing technology, products and services.

We got off to a great start as a newly public company. Despite the COVID-19 outbreak, slow economic recovery in China and the geopolitical uncertainty, we delivered a solid second quarter results anyway. Revenues were CNY 247.4 million, up 32.2% year-over-year. Monthly average users for this quarter on the Blued app grew 11.2% year-over-year, reaching 6.4 million. Notably, nearly half of our MAUs are outside China. Total paying users increased 58.5% year-over-year to 458,000, up from 289,000 in the second quarter of 2019.

Net loss for this quarter was CNY 3.3 million, significantly improved from the net loss of CNY 12.2 million in the second quarter of last year. The better bottom line was due to higher revenue, favorable revenue mix as well as better operational efficiency.

In addition to solid financial results, we executed our strategy with the acquisition of LESDO, as Mr. Ma just mentioned. This acquisition marks a significant milestone in implementing our strategy to serve subgroups within the broader LGBTQ community. They've done extensive research of the lesbian market. We found that lesbian users behaved similarly to our male users. They present strong user engagement and intending to engage in deeper emotional connections using this platform.

They also have a great willingness to pay for high-quality services. As we integrate LESDO, we will leverage our years of operational experience, strong financial resource and advanced technological platform to drive business development.

This acquisition is just the beginning of our multi-brand, multi-demographic strategy. It will enable us to test, learn and build a powerful platform that further leverages and optimizes our operation system to support each unique recognizable brand and service in each specific group of our community in the future. LESDO will build the foundation for the success of our future acquisitions.

Through acquisitions, we can broaden our community beyond homosexual men and refine and enrich our service offering to drive further monetization opportunities.

We aim to serve the LGBT community globally with comprehensive lifetime services. Over the past few years, we have executed our clear expansion strategy. In particular, we have penetrated overseas markets by leveraging our unique products and services offered through the international version of Blued app.

We started with a strong and centralized technology backbone, augmented by localized and regional operations. Currently, we are the leading online LGBTQ platform in India, Korea, Thailand and Vietnam.

Moving forward, we continue to build our global presence and improve brand awareness internationally. In this line, we held our first-ever #StayProud: A Virtual Pride Experience on June 28 with Todrick Hall, the American singer, actor and LGBTQ advocate.

As you probably know, June was the Pride Month, a month to celebrate the LGBTQ community.

Due to the COVID-19 outbreak, in lieu of a live event, we held a 2-hour virtual event. The event strengthened the tie and bonding in our community. We brought together LGBTQ influencers and users from around the world to dance, perform and showcase their talents in celebration of Pride Month. This event was very successful and certainly increased our visibility in our global community. About 16 anchors from 9 different countries gave great performances, and over 50 influencers and tens of thousands of people participated through Blued International. During this rare event, the number of daily visits to this live streaming event and the number of live streamers online all reached record highs.

We also made meaningful progress on the monetization front. In addition to the live streaming services provided via Blued International, we introduced a membership service in late 2018 -- excuse me, 2019 for overseas markets. For the second quarter of 2020, revenue from overseas markets increased rapidly, surging 1.3x from the same period last year, contributing 11% of total revenue compared with 5% for the same period last year.

At the end of July, we were ranked as one of China's top companies for corporate social responsibility as compiled by the China CSR Research Center. This annual report is one of the most authoritative CSR performance index in China. BlueCity scored 61.43 points, while the average score of the 50 Internet companies rated was 35.71. We are honored to achieve this ranking as it demonstrates our commitment to CSR efforts.

Furthermore, on August 18, we released our first ESG and CSR report. Please refer to our company website for details.

Now I will go through our operational and financial highlights for this quarter. Before I go in details about our financial results, please note that all numbers presented are RMB and are for the second quarter of 2020, unless stated otherwise. All percentage changes are on a year-over-year basis, unless otherwise stated. Our total revenue increased by 32.2% to CNY 247.4 million. Revenue from live streaming services were CNY 210.2 million, up 25.2%, primarily driven by our diverse services and rich content offering in China and globally.

Quarterly paying users for live streaming services increased by 35.3% to 174,000. ARPPU decreased 7.7% to CNY 1,206 as our promotions encouraged users to develop the habit of paying for services.

Revenue from membership services was CNY 15.8 million, up 129.6%. Our quarterly paying users for membership services increased 75.4% to 327,000, while ARPPU increased 30.8% to 48.3%. This fully demonstrates our future monetization potential for membership services. We will continue to actively explore new ways to enrich our service offering and accelerate user consumption habits.

Revenue from advertising was CNY 10.7 million, up 17.8%. Other revenues were CNY 10.7 million, more than doubled compared with CNY 3.2 million for the same period last year. The increase was mainly attributable to the growth of our merchandise sales through the He Health, our health-related service. Total transaction value facilitated by He Health increased by approximately 230%.

Cost of revenues increased by 30% to CNY 170.3 million. Gross profit was CNY 77.1 million, up 37.4%, representing gross margin of 31.2%, 1.2 percentage points higher than last year.

Revenue sharing is a key component of cost of revenue. As we solidify our market leadership, we expect to further reduce the revenue sharing percentage in order to improve gross margin. Meanwhile, we've increased revenues from high-margin membership services. We expect to further diversify our revenue stream and achieve higher gross margin.

Looking at operating expenses. They were in total CNY 82.6 million, up 24%. Selling and marketing expenses were CNY 41 million, up 33.1%. The increase in sales and marketing was mainly due to the higher advertising and promotion ad expenses associated with global expansion and increased headcount in sales and marketing.

Technology and development expenses were CNY 31.3 million, down 2.8%. This decrease was mainly attributable to lower content, server and bandwidth cost as a result of our improved procurement efficiency. This was also partially offset by the increased headcount in technology and development personnel.

G&A expenses were CNY 10.3 million, up 194.3%. The increase was mainly due to increased staff cost and higher professional service fees. Net loss was CNY 3.3 million compared with a net loss of CNY 12.2 million last year. Net loss margin was 1.3% compared with 6.5% in the second quarter of 2019.

Adjusted net loss was CNY 3.3 million compared with adjusted net loss of CNY 8.2 million in the second quarter of 2019. What a remarkable improvement.

Going forward, we will continue to advance our live streaming models, upgrade membership services to promote the consumption of paid services by our users. We will also broaden our user base within the LGBTQ community via prudent global expansion and selective acquisitions. We are confident in our long-term growth prospects due to our diverse service offerings, deep penetration in China and growing global expansion.

With that, let me offer guidance for the second half of 2020. We expect net revenues in the range of RMB 575 million to RMB 615 million, representing a year-over-year revenue growth of 35% to 44%.

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

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

Congratulations on the IPO and continued strong growth and better profit performance in the second quarter. My question is on the membership line. Obviously, more than doubled year-on-year, but was a little bit light of where we thought it would be. Can you talk a little bit more about your prospects converting memberships to paid memberships and what your initiatives are to do that?

Laura, this is Lingling. Just allow me to translate the question in Chinese, and Mr. Ma will help me to address.

(foreign language)

(foreign language)

[Interpreted] Laura, just allow me to translate Geng Le's answer. And you can see that in the second quarter, revenues from membership services grow quite significantly. And this, thanks to our diversified product offering to give -- to provide better experience to our users. And going forward, we will continue to refine our products and continue to add more features to the membership services in order to drive our paying ratio.

In addition, that -- you can see that currently, majority of our membership service revenue came from Mainland China, and we think that the opportunity for all of this market is huge. We will continue to roll out the model and try to enhance monetization capability overseas. I hope that answers the question, Laura.

Yes. And the -- my last question is on the LESDO acquisition. Can you comment more on the history of that app and the number of MAUs and DAUs? Anything more you can tell us about average user stats would be great.

Again, let me translate the question, Laura.

(foreign language)

(foreign language)

[Interpreted] Laura, I'm very happy you bring this question up. First of all, our mission is to be the service provider for all subgroups of the LGBTQ community. And LESDO -- for LESDO, it is a leading LBS networking service provider in China and has a long history of operations. The founder and the team of LESDO, they have the -- mainly are lesbians, and they have deep understanding and years of experience in the market. We are going -- and they also have achieved quite good market awareness in the past years, such as they produced short film and video that is really recognized in the market. Due to some lack of financial support, so right now, the size of LESDO is currently small. And we believe that we will provide them the financial support, technological assistance and fully leverage on each other's operating experience to deliver better service to our members.

And as you said, due to -- as I said earlier, due to the -- the size is relatively small of LESDO at the current stage, but we have fully confident that for the team -- for our team to work together, we will achieve quite remarkable progress in the coming year.

And our next question comes from the line of [Bo Hei] from Oppenheimer.

(foreign language) Okay. I would translate it myself. So I have 3 questions. The first is about MAU and paying user growth. Our paying user grew pretty nicely this quarter, but MAU growth, a little bit slower than that. So I was wondering what is our strategy in the next couple of quarters. Or mid to long term, what is our strategic focus? Would that be MAU growth or paying user growth?

And my second question is about second half guidance. It seems our second half guidance imply our growth -- revenue growth is going to accelerate from second quarter. And so I was just wondering, what is the factor, the driver behind this acceleration? Is that related to our last 2 acquisition? Or if it's not related to that, which line of the revenue? Would it be live streaming membership is going to accelerate in the second half?

And my third -- and my last question, I want to follow up on the last 2 acquisition. I want to know a little more about how much we spend to acquire the company.

And then what is the strategy going forward? Would that be -- would that grow to as successful as the Blued app we have today?

(foreign language)

[Interpreted] Just let me translate Mr. Ma's answer first, okay? In terms of MAU and paying user growth, yes, you can see accelerated growth in our number of paying users. But that's not necessarily related to the growth of MAU, because as we mentioned during the conference call, we continue to enhance monetization models in our existing service and products. So that's why we have put effort -- put lots of effort to refine our products, especially in membership services.

With that said, we invest a lot in R&D, product development, and we continue to add more paying modules to our membership services to further driving up the paying ratio. And in the long term, we focus both on the growth of MAU as well as the number of paying users.

For your second question, the accelerated growth rate in the second half of our fiscal year 2020 is mainly due to seasonality, okay? Normally, Q3, second half of the year is our heavy quarter compared to the first half. I hope that answers your question.

(foreign language)

[Interpreted] Just to add one point that, as you know, that we try to diversify our revenue mix. In addition to the virtual services we have, we also have He Health and family planning services. For the second half -- for the first half of 2020, due to COVID-19, we see some slowing down in our family planning services as we have trouble to go upward. Looking at the second half, we will see an increased revenue from family planning compared to the same period last year.

(foreign language) For the benefit of the people online, I will answer the third question from Oppenheimer in English. The question was asking about the purchase price of this lesbian app acquisition. That -- as Mr. Ma earlier mentioned that it is very -- this app was still in a very early stage on monetization, though it had won a meaningful awareness here in China.

And that purchase price was based on mutual agreement between both parties. And of course, it is of immaterial size and extent. We just disclosed this acquisition, I think, today -- excuse me, yesterday. And we truly believe that we will see synergy going forward being built up in the long run. And the sufficient and the profound operation know-how from Blued, we can get that lesbian app empowered to a much efficient extent for both user growth perspective and for the monetization feature perspective.

(foreign language) And I will translate for myself. Yes, I have a follow-up question on LESDO. I want to know a little bit more about the market share. Let's say, we are the #1, #2 lesbian online community in China. Yes, I just want to know a little bit more about the competitive landscape for the lesbian market.

This is Ben. I will answer the question directly to you that LESDO is actually was one of the top 3 lesbian players in China and have been in good dialogue with us for a while. And considering the synergy we have built over several months, that we conclude this deal for now. Yes.

And your next question comes from the line of Austin Moldow from Canaccord Genuity.

I wanted to ask about COVID-19 impacts to your live streaming and membership businesses during the first half of the year. Can you talk about whether the pandemic helped or hurt those segments?

I will translate your question.

(foreign language)

(foreign language)

[Interpreted] So during COVID, we can see the time used in the app and the level of engagement are generally higher compared than average. And we see that the level of engagement, the time spent generally increased 30% compared to average.

However, there are some services that require human interactions like family planning and health consulting has -- was marginally affected.

But as you know that family planning and He Health contribute less -- together contribute less than 5% of our total revenue. So the impact overall is quite limited. And in addition, during COVID-19, we're inviting health experts online to our app to share the way to fight against the virus. And we also make various donations to help people fight against the virus. So once again, demonstrating our commitment to social responsibility.

Great. And on live streaming, since it is still your largest revenue segment by a lot, can you talk a little more about any initiatives in the first half of the year that helps drive user growth in live streaming or monetization, such as any new products?

(foreign language)

(foreign language)

[Interpreted] Yes. Live streaming is currently contributing the largest revenue pie to our total revenue. And we have been -- put a lot of effort to further diversify our revenue mix.

And talking about live streaming, we really have to say -- we have to say that thanks to our market leadership position, we gain brand recognition and market awareness through the community. And our community is -- our users are highly engaged within the community. Therefore, our competitive edge in the live streaming sector are comparatively very high. So it will continue to contribute growth in the future.

And looking in the future, we will continue to invest in live streaming content, and we will do -- we will promote lots of promotional activities to further drive up revenue growth.

And when we look at the DAU penetration in live streaming services, the average DAU penetration rate is only around 20%. So we will do -- we will promote further online events and activities to drive up the DAU penetration.

In addition that as we roll out live streaming model in overseas markets, those live streaming services are very well received by the market. So we can say that we have a huge -- so we can say that overseas markets still have huge potential in live streaming services a lot. I hope that answers your question.

Yes.

There are no further questions at this time. I'd like to give back to Mr. Li for closing remarks.

Okay. Thank you. 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?

And that does conclude the conference for today. Thank you for participating. You may all now disconnect.

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