Mogu Inc (MOGU) 2019 Q4 法說會逐字稿

Good morning. My name is Michelle, and I will be your conference operator today. At this time, I would like to welcome everyone to the MOGU Fourth Quarter and Full Fiscal Year 2019 Earnings Call. (Operator Instructions)

I would now like to turn the call over to Mr. Rene Vanguestaine. Please go ahead.

Thank you, Michelle. Hello, everyone, and thank you for joining us today. MOGU's earnings release was distributed earlier today and is available on the IR website at ir.mogu-inc.com, as well as on Business Wire services.

On the call today from MOGU are Mr. Shark Chen Qi, Chairman and Chief Executive Officer; Ms. Helen Wu, Chief Financial Officer; and Sean Zhang, IR Director. Mr. Chen will review business operations and company highlights followed by Ms. Wu who will discuss financials. All 3 will be available to answer your questions during the Q&A session that follows.

Before we begin, I would like to remind you that this conference call contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 as amended and as defined in the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by terminology such as will, expect, anticipates, future, intends, plans, believes, estimates, target, going forward, outlook and similar statements.

Such statements are based upon management's current expectation and current market and operating conditions and relate to events that involve known or unknown risks, uncertainties and other factors, all of which are difficult to predict and many of which are beyond the company's control, which may cause the company's actual results, performance or achievements to differ materially from those in the forward-looking statements.

Further information regarding these and other risks, uncertainties or factors is included in the company's filings with the U.S. Securities and Exchange Commission. The company does not undertake any obligation to update any forward-looking statement as a result of new information, future events or otherwise, except as required under applicable law.

It is now my pleasure to introduce Mr. Chen. Please go ahead.

Thank you, Rene. Good evening and good morning to everyone. We delivered another quarter of solid growth to close out our fiscal year with total GMV increasing 18.7% in the 12-month period ended March 31, 2019. Growth continues to be driven by the robust performance of our live video broadcast business which remains one of our major strategic focus. We are increasingly devoting this focus to our -- growing our content creation community of fashion KOLs and the live video broadcast hosts and increasing user engagement on our live video broadcasts.

This focus is already generating strong results with associated live video broadcast GMV increasing 1 point -- 138.1% year-over-year and the average mobile MAUs who clicked on a live video broadcast in the 12-month period ended March 31, 2019, increasing 42.1% year-over-year. In particular, I'd like to point out that this quarter makes the 10th consecutive quarter that our live video broadcast business has recorded triple-digit growth. While this is an impressive track record of growth, we believe the market opportunity remains massive with plenty of room to expand our addressable market and other additional capacity as our platform grows in scale.

I would like to take this opportunity on the call today to explain once more about our philosophy and the strategy going forward into the new fiscal year. Over the past few quarters, we have been building a unique fashion ecosystem that caters to 3 distinct market segments. First is the diverse needs of customers seeking the latest fashion trends, products and personalized content; and the second, the active content creation community of fashion KOLs and live video broadcast hosts; and third, the suppliers around the fashion value chain such as merchants, brand owners and manufacturers who design fashion products.

Our unique fashion ecosystem allows consumers to easily discover the latest fashion trends, follow fashion KOLs and share familiar fashion taste and style, keep up-to-date on the latest products from their favorite fashion brands and easily purchase any high-quality fashion product that they desire. Fashion KOLs plays a central role in this ecosystem by connecting consumers with products, brands, merchants and personalized content.

Our ecosystem has merchants and KOLs work together and facilitates for its user and the community engagement with a fun, engaging and interactive fashion discovery experience. The deeper interactions taking place across our platform allows us to get enormous amounts of data on current fashion trends and the user preferred base, allowing KOLs, merchants and brands on our platform to create highly personalized content and products, which creates a more efficient fashion industry relation.

This business model is very unique and completely different from other source-based e-commerce platform and off-line chain stores currently in the market. We call our model a fashion destination as it is more flexible, scalable and more social media-oriented than any other platform out there. Flexibility allows it to readily cater to the specific needs of many niche customers. Its scalability provides fashion KOLs, merchants and brands the platform and the services they need to interact with customers, while the social media-oriented infrastructure integrates our existing social networks and media. With these capabilities, our fashion destination is able to offer a more comprehensive fashion experience to customers.

In conclusion, I'm pleased with our solid performance during the quarter and eagerly looking forward to the new fiscal year. I'm confident that we have the right strategy in place to drive KOL-generated GMV growth across our platform going forward as we continue to invest in technology to make -- to be a fashion destination and generate a long-term sustainable value for shareholders. Thank you.

Thank you, Shark, and thanks again, everyone, to join our conference call. I will walk you through our fourth quarter and fiscal year 2019 financials. We believe year-over-year comparison is the best way to review our performance. Unless otherwise stated, all percentage changes I am going to give you will be on that basis.

Let's review the financials. We will go through the figures for the fourth quarter of fiscal year 2019 first and followed by that of the fiscal year 2019.

We delivered another year of healthy GMV growth over the past 12 months with GMV increasing 18.7% when compared to last year. Our focus remains on growing GMV from live video broadcasting, which increased 138.1% during the same period. While this growth rate is impressive, we believe there is still plenty of room to expand and further penetrate into our existing user base.

The total revenue for the fourth quarter were RMB 217.6 million, an increase of 15.9%. The increase was primarily attributable to an increase in commission revenue and other revenues which were partially offset by a decrease in the revenue from marketing service. The commission revenue were RMB 116.5 million, an increase of 37.3%, primarily due to growth in the GMV and also a slightly higher average commission rate that we achieved.

The revenue from marketing service were RMB 71.3 million, a decrease of 6.6%. The decrease was primarily due to our strategic shift towards live video broadcast, which affected the amount of marketing properties -- marketing service properties available on our platform and also the number of marketing service customers. Other revenues were RMB 29.8 million, an increase of around 12.6%, primarily due to the growth in the financing solutions that we offer to our users and merchants.

Total cost of expenses were RMB 385.7 million, an increase of 15.6%, which I will go into more details with you below. First of all is the cost of revenue, which was RMB 61.1 million, a decrease of 19.7%. This was primarily due to a decrease in the depreciation expense from the disposal of our server when we transitioned to a third-party cloud-based network infrastructure in fiscal year 2018. Sales and marketing expenses came at RMB 178.2 million, an increase of 49.5% year-over-year, primarily due to a higher spending on branding campaigns around and during the Chinese New Year holiday.

In terms of R&D expenses, it was RMB 57.2 million, down 17.7%, largely due to a decrease in the payroll costs which were in line with the decrease in headcount for our research and development personnel as we continue to rationale -- optimize the team structure. General and administrative expenses were 46.8% -- RMB 46.8 million, an increase of 109.8%, primarily due to an increase in share-based compensation expenses.

Other net income decreased by 69.5% to RMB 2.6 million. This is largely due to a disposal gain from a server following our transition to a third-party cloud-based network infrastructure in fiscal year 2018. And in the fourth quarter, share of results of equity investees was RMB 13.1 million. Net loss narrowed to RMB 140.8 million compared to 164 -- RMB 154.7 million in the fourth quarter of fiscal year 2018.

Adjusted EBITDA was a loss of RMB 87.4 million compared to a loss of RMB 74.3 million in the same period of fiscal year 2018. The adjusted net loss was RMB 67.7 million compared to a net loss of RMB 86.2 million in the same period of fiscal year 2018. Basic and diluted loss per ADS were RMB 1.32 compared to RMB 7.02 in the same period of fiscal year 2018.

Now we're moving on to the financials for the fiscal year 2019. Total revenue for the year were RMB 1.07 billion, an increase of 10.4%. The commission revenue were RMB 507.7 million, an increase of 22%. Revenue from marketing service were RMB 395.7 million, a decrease of 17%. Other revenue were RMB 170.8 million, an increase of 112.8%, largely due to, first of all, the growth in the financing solution that we offer to the users and merchants and also our trial operation for the online direct sales of beauty product during the second half of last year.

Total cost and expenses were RMB 1.64 billion, a decrease of 9.5%. Cost of revenue were RMB 313.8 million, a decrease of 1.2%. In terms of sales and marketing expenses, that came in at RMB 743.7 million, a decrease of 0.6% year-over-year, primarily due to the lower spending on the customer incentive program, which was offset by higher spending on the branding expenses and user acquisition expenses. In terms of R&D, it was RMB 236.4 million, down 18.3%. General and administrative expenses were RMB 168.4 million, an increase of 86.2% (sic -- see press release, "68.2%").

Other net income decreased by 53.8% to RMB 8.8 million. In the fiscal year 2019, share of results from the equity investees was RMB 5.8 million. Net loss narrowed to RMB 1.09 billion compared to RMB 1.25 billion in the same period of last year. Adjusted EBITDA narrowed to a loss of RMB 264.7 million compared to a loss of RMB 384.2 million in the same period last year. Adjusted net loss was RMB 239.7 million compared to a net loss of RMB 420.2 million in the same period of last year. Basic and diluted loss per ADS were $21 -- sorry, RMB 21.74 compared to RMB 56.57 in the same period last year.

So with that, probably we'll go on to the Q&A.

(Operator Instructions) And your first question comes from Monica Chen from Crédit Suisse.

So could management shed some color on the platform's current content strategy as well as user growth trend especially post Chinese New Year with respect to like user retention, user quality, et cetera? Any color would be appreciated.

(spoken in Chinese)

(spoken in Chinese)

Well, in terms of content, the strategy will continue to actually increase and strengthen the live video broadcast where we already seen a 10 consecutive quarters of a triple-digit growth. And also over the last quarter in terms of the users and also the content creation, everything is -- it has been growing as is planned. And also, in terms of content, there is another form that actually we started initiative on is the short video. And then there are some -- the app or the product changes or upgrades in -- for the short video part. And the user feedback is pretty positive. So we will continue to strengthen or to actually boost the content in the form of a short video.

And the area that we need to improve is the conversion to purchase from these viewers of the short videos because we just started, and then we will still to monitor the progress and then -- and through our -- to interact more with -- or getting more feedback from the users as well as the product improvement.

(spoken in Chinese)

Over the last 2 quarters, we actually observed there are more and more new visitors viewing or consuming our content on our platform. And --- but in terms of converting these new users -- viewers into buying users, that still takes time. So we will continue to do this -- to do the work and then strengthen the contents itself and then also improve the product to improve it, yes. Does that address your question, Monica?

Yes. Yes, a lot.

(Operator Instructions) Your next question comes from Melissa Chen from China Renaissance.

(spoken in Chinese) I'll translate for myself. I have a question in terms of the supply chain. So during the past quarter, I'm wondering what measures have the management taken to improve in terms of supply chain. And any future measures to be taken?

(spoken in Chinese)

In terms of strategy on the supply chain, it's actually -- it's been pretty clear since the end of last year where we are trying to actually improve or elevate the merchants in our supply chain. We want to actually convert -- not convert, let me rephrase. We want to actually make some improvement by -- transform our supply chain management from a completely free marketplace model into a kind of semi marketplace, which means that we will put some supervision in terms of who can come into our platform become the suppliers of the product -- platform. For instance -- that is actually for the purpose of -- to aggregate orders from the customers and then to a certain extent, to improve the efficiencies for the mercantile, for the suppliers on our platform and then achieve better price and then stable quality for the consumers ultimately.

And our current focus is on the beauty product. For instance, we have a [3D] product, [2D] product, which is focusing on the beauty product where we have actually introduced more than 200 brands of beauty product into this supply chain system on our platform. And we actually have online kind of like a fair doing a matching work between our live video broadcast hosts and all these suppliers to make them work together. And then this is online, we do that. And also we actually host the off-line fairs for these hosts and also these suppliers. And that has been pretty effective. And for instance, in the promotion scene or promotion campaign in May, the portion of the beauty product actually that's been supplied by the suppliers in the supply chain on our platform has been growing quite fast.

(spoken in Chinese)

In terms of beauty product supply chain, our job is probably 50% done, and we would continue doing the remaining 50% based on the experience, and it includes lessons that we learned from the past.

The next one we will probably move to, more sort of apparels. And whilst -- because beauty product is still kind of a more standard product, but then we move on to nonstandard apparel category. We will start with the jeans where we are focusing in selecting the top or the high quality suppliers, probably the top ones on our platform. And we'll aggregate the majority of sales of the jeans on our platform to these suppliers, and to have a deeper collaboration with them. So that in terms of the quality and the price, et cetera, we will have more leverage and negotiating power with them to make sure all these measures actually carried by the product -- by the consumers will be satisfied, fulfilled by these suppliers. And if the jeans are the improvement or the transformation is successful, we will actually grow out into other kind of semi-standard category like bags, like casual wear, more sort of like on the functional wear part, and also shoes, et cetera, and yes.

(spoken in Chinese)

In summary, the ultimate purpose that we were trying to do is -- for doing that is try to aggregate orders from customers and then give it to the suppliers that actually we examined and we picked and also improve their efficiency. And then so that ultimately it will turn into -- we have more control and power on the margin -- on the margin side. And then if we go 1 step further, that will go to the brands. And then sort of the ultimate promise towards of all these products.

And then for instance, last month, there has already been a brand -- one of the beauty product brands who has already do some co-branded product with one of the live video broadcast hosts, yes. And then you probably will actually observe more and more such cases when we actually further continue to do these supply chain aggregation -- elevation and to work more direct with all these brands.

(Operator Instructions) I have no further questions in queue. I turn the call back over to Rene Vanguestaine for closing remarks.

Thank you, Michelle. Thank you all for joining this call and for your continued interest in MOGU. Don't hesitate to call us if you have any questions. Good night.

Thank you, everyone. This will conclude today's conference call. You may now disconnect.