MOGU Inc. (MOGU) Q1 2020 Earnings Report, Transcript and Summary

Good morning. My name is Amy, and I will be your conference operator today. At this time, I would like to welcome everyone to the MOGU First Quarter of Fiscal Year 2020 Earnings Call. [Operator Instructions] Thank you. Christian Arnell, you may begin your conference.

Thank you. 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 Mr. Sean Zhang, IR Director. Mr. Chen will review business operations and company highlights followed by Ms. Wu, who will discuss financials. All three will be available to take your answer during the Q&A session that follows. Before we begin, I'd like to remind you that this conference 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, anticipate, future, intends, plans, beliefs, estimates, targets, going forward, outlook and similar statements. Such statements are based upon management's current expectations 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, Christian. Hello, everyone. Thank you for joining us today. When we started MOGU 9 years ago, we had a strong belief that fashion should be accessible for everyone. Since then, we have been striving to unwrap the fashion industry and create equal opportunities for everyone regardless of their income and backgrounds to get involved and experience our unique fashion content, products and technology. On this mission, we set out a goal to become a fashion-driven innovative fashion and lifestyle destination. We have diversified our business to satisfy customer’s increasing demands for personalized fashion content and a shopping experience. And over last quarter, we had over 60,000 fashion KOLs, more than 22,000 live video broadcasting host and over 3,100 hours of highly engaging live video broadcast every day. Our live video broadcast business maintained triple digits grow for the past 11 quarters and its GMV contribution to our total GMV also doubled over last year. All these metrics demonstrated a massive market opportunity to expanding addressable market and additional capacity we’re opening up as our path on growth and scale. Our focus during the quarter remained on investing - improving our user experience and keeping the triple digit growth of live video broadcast business by attracting more fashion and lifestyle KOLs from different backgrounds and with a wider a variety of talents. We have announced four KOL training camps in Hangzhou, Guangzhou, Wuhan and Shenzhen in order to increase the number of new live video broadcast hosts. And we’re already seeing great results from our new up and coming hosts. Some new hosts has RMB 1 million GMV in a single session after less than three months of training and with our supply chain support. We are not only increasing the number of KOLs, we're also expanding our live video broadcast supply chain support into more categories, including cosmetics, jewelry, home goods and lifestyle products. We're seeing more and more successful stories on this approach. I want to share with you one truly successful story. With our training and supply chain support, one of our top hosts who mainly focus on apparel before sold RMB 16 million jewelry in one session. This is a record high in jewelry category across the whole industry. As a pioneer in live video broadcast industry, we’re glad to see its popularity continue to grow rapidly among all Internet users. I know we are facing some big challenges as we are not the only one who wants to increase the market share in live video broadcast industry and we have to deal with the change of switching our revenue model from a traditional online market place to a new generation KOL-based online fashion platform. But I also know that this is the right time to do a lot of things because it’s clear that live video broadcast is quickly becoming one of the most popular and effective content formats to drive user engagement, sales conversion and entertainment, especially in fashion industry. This has validated and strengthened our commitment in China’s live video broadcast industry. While most of the platforms focus on male users, we’re only one focusing on female users and have already created a whole value chain of live video broadcast inside our ecosystem. Therefore, we are in a really good position to build a leading KOL centers, live video broadcast platform to serve and entertain a, huge number of female customers. In order to achieve this goal, we are deploying three key strategies. First, while further enhancing the live video broadcast infrastructure and support to our KOLs, which is already one of the most comprehensive and established in the industry. This includes user traffic and supply chain, marketing and branding supports, training and coaching, data and software as well as customer services and financial services. Second, while rapidly increasing the total number of active KOLs and broadcast hours per day. We believe the diversity and depth of our KOL community is crucial to satisfy our expanding customer base. And lastly, we will be working on innovative monetization tools to have - attract KOLs and softwares upgrade - creativity. This will also have help us diversify our revenue model in the future. In conclusion, I’m pleased with the solid progress we have made during this past quarter and excited about the direction we are heading. I am confident that we will capture the enormous opportunities of live video broadcast for female customers. With the right strategies in place, we will continue to drive long-term growth through our KOL-driven fashion and lifestyle destination model and grow live video broadcast related GMVs to account for over 50% of total GMV within the next 12 months. With that, I would like to hand the call to our CFO Helen, who will walk through our financial results in this quarter.

Thank you, Shark. Thank you, again, everybody for joining on the call tonight. I will walk you through our first quarter fiscal year 2020 financials. We believe year-over-year comparison is the best way to review our performance. So unless otherwise stated, all percentage changes I'm going to give will be on that basis. So let's review the financials. We delivered another year of healthy GMV growth over the past 12 months with GMV increasing 12.4%, when compared to last year. Our focus remain on growing our GMV from live video broadcasting, which increased to 31.5% during the same period, nearly double when compared to the same quarter last year. For total revenue, we are RMB 248.9 million, a slight decrease of 2.8% year-on-year. The decrease was mainly driven by the commission revenue which increased by 10% year-over-year to RMB 129.4 million, and largely offset by the 12.3% year-over-year decrease in marketing service revenue. The commission revenue was RMB 129.4 million, an increase of about 10%, primarily due to the growth in our live video broadcast business and the slight improved commission rates. We expect that our commission rate - the overall - our overall commission rates will continue to improve for the whole platform as we increase the GMV contribution from the live video broadcast and the - continuous to improve the operational efficiency and also we continue to expand our prime service offering in collaboration with our live video broadcast business, as well as the restructure and upgrade our market-based business. Marketing service revenue were RMB 89.2 million, a decrease of 12.3%. The decrease was mainly due to the growth in the live video broadcast business, which affected the amount of marketing service properties available on our platform and also decreasing the total number of transacting merchants as a result of ongoing optimization upgrade of the merchant structure on our platform to improve the overall quality. Other revenue were RMB 30.2 million, a decrease of 17.3%, primarily due to a decrease in technology supporting services that we provided to a newly established equity investee during the same quarter in last fiscal year, which has since the up gradually expand its own back office technology supporting functions. Total cost and expenses were RMB 354.2 million, a decrease of 4.9%, which I will go into more details with you below. First of all, cost of revenue were RMB 60.6 million, a decrease of 17.3%. This was primarily due to a decrease in apparel cost, including a reversal of share-based compensation expenses previously recognized as a result of headcount optimization which was partially offset by an increase in IT-related expenses associated with the live video broadcast business growth. Sales and marketing expenses came at RMB 145 million, a decrease of 12.8% year-over-year, primarily due to a lower spending on user acquisition expenses and also the user incentive program. R&D expenses were 60 - sorry, R&D expenses were RMB 56.2 million, down by almost 11%, primarily due to decrease in payroll costs which were in line with the decrease in headcount as a result of the headcount optimization. And last one is the general and administrative expenses were RMB 34.2 million, an increase of 6.6%, primarily due to a decrease in payroll costs, including the share-based compensation expenses which were in line with the decrease in headcount as a result of headcount optimization. And during this quarter, the share of the result of equity investee was negative RMB 23.2 million. The net loss narrowed to RMB 120.5 million compared to a RMB 309.3 million in the first quarter last fiscal year. The adjusted EBITDA was a loss of RMB 25.3 million compared to a loss of RMB 58.9 million in the same period last year. Adjusted net loss was RMB 42.3 million compared to a net loss of RMB 74.9 million in the same period of fiscal year 2019. So the basic and diluted per loss per ADS were RMB 1.12 compared to RMB 13.49 in the same period of last year. Going forward, as we focus - we continue to focus on the live video broadcast business, we expect the commission revenue to continue drive the total revenue and our live video broadcast business grow to account for a more significant portion of our business. So with that, we'd like to open the call for Q&A.

Thank you. [Operator Instructions] Your first question comes from the line of Charlie Chen with China Renaissance. Charlie, your line is open.

Hi, management. Thank you for taking my questions. My first question is about the revenue. So I would like to understand a little bit more about the granularity of the growth drivers. So basically the GMV growth is driven by more host hours or more GMV per broadcasting hour or change of categories. So what is the breakdown of contribution of the GMV growth by each factor, more hours or more units GMV per hour? So can you share with us about this information? Thank you.

Please pause for one second as we translate for Shark.

[Foreign Language]

So you're right, up until now in the past 10 quarters, these are the 2 main drivers for our live video broadcast business. We are in early stage. The main driver has been the increase for the growth of total broadcast hours. But in the past year, we have seen growth in GMV per hour driven by our increased basically live video broadcast infrastructure like including training, improving operational efficiency, supply chain and improving conversion. With this infrastructure established, going forward, we're going to focus again in growing the total number of active live video broadcast host as well as the total number of sessions or the live video broadcast hours per day.

Thank you.

[Operator Instructions] And your next question comes from the line of Ashley Xu with Credit Suisse. Ashley, your line is open.

Thanks management for taking my questions. Two questions from me. One is that, could we get some guidance on the full year targets in GMV and revenue growth? Second one is about the take rate because we are disclosing GMV and revenue in different lines. So just want to see how the take rate looks like for live video broadcasting and also for traditional marketplace? Thank you.

One second as we translate for Shark, please.

Thank you, Ashley for your question. I will take your question. I think from GMV perspective, I think to give an idea for the full year 2020, our live video broadcast business will continue to grow. And it's been growing on year-over-year every quarter on this three digit growth rate. So this will be maintained even for the FY 2020. And for the overall at this stage, we don't actually provide guidance for the overall platform because at the moment we are actually doing the transformation of our marketplace which will, going forward, be more sort of in collaboration with the live video broadcast. And so at this stage, probably it will be premature to give you overall platform because going through the transformation there will be some challenges and uncertainties going forward. But then for the live video broadcast business, it's been pretty much established. We are very confident that for the FY 2020, we will continue to deliver 3 digit growth in GMV. And in terms of the take rate to your question, as we see that the take rate overall has been improving every quarter. And so we are pretty confident that actually as we continue to improve the operational efficiency there are still room to increase the take rate in this business.

Thank you.

Your next question comes from the line of Charlie Chen with China Renaissance. Charlie, your line is open. Charlie, if you are on mute please un-mute, your line is open

Okay. Yeah, management thanks for taking my questions again. I have a question regarding the cash flow. I can see for the past quarter, it's just the P&L number seems to be much better than the quarter a year ago. But the operating cash flow actually was kind of worse than a year ago and also investing cash flow seems to be high as well. So can you explain the difference between the P&L and the cash flow? So what is the driver for, I mean, the large amount of cash outflow for this quarter? Thank you.

Yes. I'll take that. Charlie, to your question, it's on, right? To your question, you can actually look at the operating cash flow, which has been -- actually improved. But I think investing cash flow it's actually mainly about our -- the investment in the short-term securities using the cash on balance. So that’s actually - usually offset each other. So in investing, we do not have a lot of CapEx in terms of fixed asset, et cetera. The amount is actually mainly related to the actual inflow and outflows on the capital deployed in the short term investment.

Okay. Thank you.

[Operator Instructions] There are no further questions. I would now turn the call back over to Christian Arnell for closing remarks.

Thank you, everyone, for joining the call tonight. If you have any questions or comments, please don't hesitate to reach out to anyone here in MOGU. This concludes the call. Have a good night.

Thank you. This concludes today's conference call. Thank you for your participation. You may now disconnect.