MOGU Inc. (MOGU) Q4 2021 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by and welcome to the MOGU Fourth Quarter and Fiscal Year 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker’s presentation, there will be a question-and-answer session. [Operator Instructions]. I would now like to hand the conference over to your speaker today, Mr. Roger Hu [ph]. Thank you. Please go ahead, sir.

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 the Businesswire Services. Before we begin, I'd like to remind you that this conference call contains forward-looking statements within the meaning of Section 21 E 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 are based upon management's current expectations and the current market and operating conditions and relate to events that involve known or unknown risks, uncertainties or 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 these 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 otherwise, except as required under applicable law. On the call today from MOGU are Mr. Shark Chen Qi, Chairman and CEO; Mr. Raymond Huang, Chief Strategy Officer and Miss Wu Ting, Financial Controller. Mr. Chen will review the business operations and company highlights followed by Mr. Huang, who will discuss financials. They will be available to take your questions during the Q&A session. Now, it is my pleasure to introduce our Chairman and CEO, Mr. Chen. Please go ahead.

Hello, everyone. Thank you for joining us today on our fourth quarter and fiscal year 2021 earnings conference call today. During the past quarter, we continue to see a consistent and steady growth in live e-commerce business. The journey from live e-commerce increased by 42% year-over-year to RMB2.245 billion in the fourth quarter contributing to 87.2% of the total GMV during this period. This demonstrates that MOGU has successfully executed on the transformation of its business and has essentially become a pure play live e-commerce powerhouse. As an early mover in live e-commerce, we have witnessed the advancements in the live e-commerce business in China during the last five years and have established a very differentiated shopping experience for our users. This allow us to continue capturing new growth opportunity in the e-commerce space in China. So, continuous innovation is an essential quality in MOGU’s culture. After establishing our live e-commerce business in 2016, we have also developed a product feature called short-live which has really begun to make a breakthrough over the past few months. Short-live is basically a short video clip produced by KOLs in MOGU live room and can be disputed as a structure and track information to wider audience in public. This information can be searched, structured, categorized, and recommend in the field. Different from the one-off performance in the live show, short-live can have very long shelf life for consumers to browse and purchase. As for our users, short-live has significantly enriched their live mobile shopping experience and has also lower the entry barriers for new users in our live e-commerce business. Although the user stickiness of live e-commerce is very strong, it's also very time consuming, and represent a higher entry barrier for new users. That's what makes it difficult to probably improve the penetration rates of live e-commerce in e-commerce space. Short video is not just a simple recording of product presentation, it also captures the past moment of the live host and also the personal touch on the product feature. As for our partners, our short-live product is also a disruptive innovation. Short-live can be easily recorded during the mobile live shows and their production costs are very low. Apart from real-time sales in the live showroom, short-live allows for KOLs to fully extend their sales channels in the long term. Furthermore, short-live also provides an excellent growth path for small and medium KOLs. By leveraging the lower entry barrier for gaining new fans, they can generate, stable and considerable revenues from the short-live business. Just a few months after launching this product, we have already seen hundreds of KOLs growing their presence. Our short brand partners, short-live now enables them to generate continuous sales volume over an extended period of time in addition to generating exclusive sales live. We have achieved our early success with our short-live product. And believe that it will be a breakthrough in live e-commerce industry. Going forward, we’ll continue to expand the ecosystem of short-live and to help accelerate our live e-commerce growth. We believe that there will be unlimited possibilities for live e-commerce in the future. And MOGU will be a continuous innovator and a beneficiary of the industry. Thank you.

Thank you Shark. Thanks again for everyone for joining our conference call today. I will now walk you through our fourth quarter and fiscal year 2021 financials. We believe year-over-year comparisons are the best ways to review our performance. Therefore, unless otherwise stated, all percentage changes I'm going to mention will be on that basis. So, let's review the financials first. Our GMV for the fourth quarter of fiscal year 2021 was RMB2,576 million, an increase of 6.5% year-over-year. GMV for the 12 months period ended March 31, 2021 was RMB13,855 million a decrease of 18.8% year-over-year. Our focus has been growing the GMV from live video broadcasting business, which has increased by 42% year-over-year to RMB2.245 billion. Live video broadcasting associated GMV for the fourth quarter of the fiscal year 2021 accounted for 87.2% of the total GMV. Let’s now turn to revenues. During the quarter, total revenues decreased by 23.6% to RMB90.9 million from RMB119 million during the same quarter of fiscal year 2020. Commission revenue decreased by 1.7% to RMB65.2 million from RMB66.3 million in the same period of fiscal year 2020, primarily due to the restructuring of company's business towards a LVB-focused model. Marketing services revenue, which is mainly generated through our marketplace business units decreased by 34.5% to RMB11.9 million from RMB18.2 million in the same period of fiscal year 2020. The decrease was primarily due to restructuring of company's business towards LVB-focused business. I will now walk you through our major cost and expense. Cost of revenue decreased by 35.4% to RMB37.9 million from RMB58.6 million in the same period of fiscal year 2020 which was primarily due to a decrease in the cost associated with lower online direct sales. Sales and marketing expense decreased by 44.5% to RMB43.4 million from RMB78.2 million in the same period of fiscal year 2020 primarily due to optimize spending on branding and user acquisition activities. Research and development expense decreased by 40.3% to RMB19.6 million from RMB32.8 million in the same period of fiscal year 2020, primarily due to the optimization of headcount. G&A expense increased by 124.4% to RMB25.7 million from RMB11.5 million in the same period of fiscal year 2020 primarily due to the reversal of share-based compensation expense in the fourth quarter of fiscal year 2020. Amortization of intangible assets decreased by 5.7% to RMB82.1 million from RMB87.1 million in the same period of fiscal year 2020. Loss from operations was RMB110.3 million compared to loss from operations of RMB149.1 million in the same period of fiscal year 2020. Net loss attributable to MOGU’s ordinary shareholders was RMB108.6 million compared with the net loss attributable to MOGU’s ordinary shareholders of RMB141.9 million in the same period of the year 2020. Adjusted EBITDA was RMB20.1 million compared with the negative RMB83.6 million in the same period of the year 2020. Cash and cash equivalents, restricted cash and short-term investments were RMB803.1 million as of March 31, 2021 compared with RMB1095.4 million as of March 31, 2020. So, let's now move the financials to the entire fiscal year of 2021. Total revenue came in at RMB182.4 million, a decrease of 42.3%. So, the commission revenue came in at RMB318.6 million, a decrease of 27.3%. Marketing services revenue came in at RMB71.3 million, a decrease of 70.6%. The overall decrease was primarily due to company's restructuring or transformation of its business towards the LVB-focused model. Cost of revenue decreased by 37.7% to RMB183.1 million. Sales and marketing expense decreased by 62.5% to RMB229.8 million primarily due to optimize the spending on branding and user acquisition. R&D expense decreased by 39.5% to RMB103.5 million [ph]. And G&A expense decreased by 19.6% to RMB103.0 million. Loss from operations was RMB428.9 million compared with the loss of operations of RMB2072.9 million in fiscal year 2020. Net loss attributable to MOGU’s ordinary shareholders was RMB328.0 million compared with RMB2223.6 million in fiscal year 2020. So adjusted EBITDA was negative RMB51.5 million compared with a negative RMB320.1 million in fiscal year 2020. Our net loss and adjusted EBITDA improved remarkably by 85.3% and 83.9% respectively which showcase the positive effects from our efforts to optimize customer acquisition and operating efficiencies. By the end of fiscal year 2021, we’ll have reached a major milestone in the execution of our strategic transition to a live video broadcast e-commerce company. Our breakthrough in the short video further expands our live video broadcasting ecosystem, and is a new revenue growth generator. Going forward, we’ll continue to execute on our disciplined approach in terms of customer acquisition, and we’ll partner with more capable and innovative KOLs so that they can deliver the best products and the best shopping experience to our consumers. So, with that, I would like to open the call for Q&A. Operator?

[Operator Instructions] Your first question comes from the line of Sabrina Hu from Jeffries. Your line is open. Please ask your question.

Thanks management for taking my questions, I have two questions. The first one is how should we see the competitive landscape going forward in the short video platform step up efforts in live streaming e-commerce? The second one is how should we see the live streaming e-commerce growth rate this year for best industry in MOGU, where the new form short-live goes to the revenue curve? I’ll translate myself.

Sure. So, I’ll answer the question directly in English there. So, yes, number one speaking of competition, of course, we are seeing that the e-commerce space in China is extremely competitive. But we do believe that okay, Chinese consumers are very, very demanding. They are always asking for more innovative and more interesting, more immersive, more interactive way to shop. China is becoming a very strong country with a very open society. So, that our shoppers have many different options. They're not just going for the cheapest products or they are going for the massive products. They're actually asking for different shopping experience. So, that's why MOGU will stay very, very focused on product innovation and to give our consumers the best experience. And we believe that our KOL partners, they know our consumers the best, they can find the best product that is suitable for our consumers and they can actually deliver the best experience. So, speaking of maybe other competitors, we are seeing that the other maybe short-video platforms, they are very, very strong in terms of traffic or in terms of entertainment content. But we are a live e-commerce platform. So, that's the fundamental difference between us. And we do believe that we can provide a more holistic shopping experience in terms of reform, return, and also quality control, brand -- authentic brands. And all these are very important elements when our consumers to make a purchase decision. So that's why we're different from short-video platforms. And also compared with other big shopping platforms, I think we're very much focused on the human element. We want our KOLs to become the front page of our shopping experience. So, they can interact with our consumers. So, instead of people go to a certain platform, then search for products, they will be actually connected with our KOLs to buy whatever product actually our KOLs think that is suitable for them. So, I think this basically differentiate us from the other shopping platforms. And we believe that our users, as you can see from the retention data, is very, is showing that it's showing their vote to support our platform. And the second question is about short-live and the revenue. So, we have a view that short-live is a very, very important product feature that can help all the KOLs to grow faster on a platform. All the suppliers can benefit from the growth of KOLs. And our consumers will be attracted to us because of the diversified and massive supply of KOLs, and substantially the products behind them. So, we believe that this is a very important growth engine for us in terms of users and in terms of KOLs. So over time, our supply will be increasingly diversified. And our experience will be increasingly diversified. And therefore, revenue or any financial numbers, as a result will come after that. So, when we examine the competition landscape, we also include the kind of our internal reasons. So, I think our dedication to live e-commerce and our very extremely efficient operation is a very important differentiating factor. So, we know that e-commerce is very complicated system, that everyone's to do a lot of work around the system to make sure that system doesn't fall apart. And a live e-commerce is actually more challenging. And as we can see that live e-commerce is accounted for 87% of our total GMV, we're now effectively a pure play of live e-commerce. We have been dedicated to live e-commerce segments for very, very long time. And our investments and our dedications in this segment will definitely pay out. And our focus on the live e-commerce segment is a big differentiating factor that differentiate us from competitors. And the short-live as a result was also the fruit of our dedicated effort in this segment. So, without this much this level of dedication, we wouldn't be able to innovate a product like this. And we believe that this is actually a very big breakthrough of the live e-commerce industry in China.

Your next question comes from the line of Charlie Chen. Your line is open, please ask your question.

[Non-English].

Okay. So, basically the question is very simple, is basically about the ROI of short-live versus live, in terms of incorporating of different factors, including user interaction in the showroom, and also how many times we can repeatedly use the live short-live video? So, the company's answer is, yes, that's a very good question. So, short-live is meeting the user interaction. So that's actually now the best part of the format. So, our users tend to find better user interaction in the live showroom. So that's where most of the interaction happens. That's where the immersive and interactive experience takes place. However, the pros or the advantage of product is that, it can be used forever. We are seeing that our hosts can be -- they recorded a short-live from last year, maybe from 12 months ago, can be still seen by our audience. And people are still making purchase of that item that re-introduce or represents 12 months ago. So, it has a very, very long shelf time. So, people can always go back to the product and the buy that. So that, so apparently, the return on investment on that, or I guess the sales that can generate per SKU, or sales can generate per short-live is very, very high. And speaking of the interaction, or I guess the specific things about a short-live is in short-live, you can see all the previous product reviews posted by previous buyers. So, in live, you actually cannot see all the user reviews at the same time, because the product is actually new. And it's actually new to the audience. But in short-live, because it has very long shelf life, so you can actually see all the reviews from previous buyers, and then make a more informed decision accordingly. So therefore, the conversion rate, even all the assistance from previous buyers, make the conversion rate even higher. So, that's kind of what we have observed over the course of last year - over the last few months.

Again, thank you very much. Thank you.

[Operator Instructions]. Your next question comes from the line of Locky Lau. Your line is open, please ask your question.

[Non-English].

Okay. So, Locky’s question is about the generic growth for the last quarter and for the quarter going forward. So, I think as Sabrina mentioned earlier, China has actually extremely competitive situation. The last year’s e-commerce is growing really fast in terms of the Intel sector growth, so it's also extremely competitive. So, at this juncture, we wouldn't be able to give forward guidance on the GMV growth but we do believe that the live streaming e-commerce segment has very, very high potential and we're only at the beginning. So, we are optimistic and positive on this side. So, we'll continue to invest in the live e-commerce business to make sure that we can capture all of those opportunities going forward. Okay. So, operator do I have next question?

There are no further questions at this time. You may continue.

Okay, great. So, if we don’t have further questions on the floor and we can end the call today, so thank you again, everyone for joining the conference call today. We look forward to seeing you next quarter.

This concludes today's conference call. Thank you for participating. You may now disconnect. Presenters, please stay on the line.