MOGU Inc. (MOGU) Q1 2022 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by, and welcome to the MOGU First Quarter of Fiscal Year 2022 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] Now, I would like to hand the conference over to your speaker today, Ms. Vivian Wang. Thank you. Please go ahead.

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 irmogu-inc.com as well as on the Businesswire services. 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 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 the forward-looking statements. Further information regarding this 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 statements as a result of new information, future events or otherwise, except as required under applicable law. On the call today for MOGU are Mr. Shark Chen Qi, Chairman and CEO; and Ms. Feng Qi, Financial Controller. Mr. Chen will review the business operations and company highlights, followed by Ms. Feng, who will discuss financials. They will all be available to take your questions during the Q&A section. Now it is my pleasure to introduce our Chairman and CEO, Mr. Chen. Please go ahead.

Hello, everyone. Thank you for joining us on our first quarter fiscal year 2022 earnings conference call today. During the fiscal year of 2021, we successfully completed the transformation of our business and have essentially become a pure-play live video broadcasting e-commerce company, which I'll refer to as LVB moving forward. During the past quarter, our large e-commerce business continued to maintain its steady growth. The GMV from LVB increased by 14.7% year-over-year to RMB2.6 billion contributing to 8% of the total GMV during the period. As we look ahead, we will continue to enhance the supply chains on our platform. On one hand, we'll further improve the overall quality of our platform by only offering products that have a higher standard for quality control and gradually replace the products and merchants that fall below the requirements. On the other hand, we will continue to cater to the consumption trends fueled by the younger customers by offering more options of newly launched fashion brands through expanding our product categories and cooperation with more suppliers. For our LVB hold, we will continue to empower them through a more effective and fashionable short video format and maintain our high user retention rate and ARPU by leveraging more high-quality short videos to attract more users to our platform. On July 26, we completed the acquisition of Hangzhou Ruisha Technology Co., Limited, which I will refer to as Ruisha Technology. MOGU beneficially owns the 59.62% equity interest in Ruisha Technology. Ruisha Technology is committed to providing one-stop and customized services of full domain operations for brands from a wide variety of industries ranging from clothing, shoes and bags, education, maternal and infant health, foods as well as cosmetics and skin care. Its customers include various well-known brands such as Li Ning, Zara, [indiscernible], and Yili. Its revenue has increased by 13.4 times in recent two years, and MOGU's acquisition of Ruisha Technology is of strategic significance. After establishing our live e-commerce business in 2016, it took us many years of experience and constant improvements to reach our current state. We now operate a well-established LVB e-commerce ecosystem that empowers our brands and supply partners through the integration of our transaction systems, customer service systems and financial system. As an e-commerce platform, MOGU has helped many traditional brands, manufacturers and supply chains to successfully execute their transformation from offline to online operations and from traditional e-commerce to live e-commerce models. Thanks to our innovative and forward-looking ecosystem, we're now in a mature capacity to effectively service our brand partners. The acquisition Ruisha Technology embodies the expansion and full utilization of the 2B service capabilities that we have accumulated over the years. Ruisha Technology will focus on helping those brands that hope to operate online, elected technology and operational experience to find solutions to achieve value and growth. In addition, MOGU will also reach more brands through Ruisha Technology to further enrich our LVB ecosystem for delivering better services to our partners. Based on our unrelenting confidence in our future business growth prospects and the recognition of our long-term investment value, the Board of Directors has authorized a new share repurchase program. Our company is authorized to repurchase our ADS with an aggregate value of up to $10 million during the 12-month period starting from the date of the announcement of the share repurchase program. With that, I will turn the call to Feng Qi to go over the financial details.

Okay. Thank you, Shark. Thank you, Vivian. Thanks again to everyone for joining our conference call today. I will now walk you through our first quarter of fiscal year 2022 financials. We believe year-over-year comparisons are the best way to review our performance. Therefore, unless other stated, all percentage change I'm going to mention will be on GAAP basis. Let's review the financials first. Our GMV for the first quarter of fiscal year 2022 was RMB2,864 million, a decrease of 8.2% year-over-year. Our strategic focus has been on growing the GMV from live video broadcasting, which has increased by 14.7% year-over-year to RMB2,600 million. LVB-associated GMV for the first quarter of fiscal year 2022 accounted for 90.8% of the total GMV. During the quarter, total revenues decreased by 30.6% to RMB92 million from RMB132.5 million during the same quarter for fiscal year 2021. Commission revenues decreased by 23.7% and to RMB65.1 million from RMB85.3 million in the same period of fiscal year 2021, primarily attributable to the lower GMV from the heightened competitive environment. Marketing Services revenue which is mainly generated from our marketplace business unit, decreased by 64% to RMB8.6 million from RMB24 million in the same period of fiscal year 2021. The decrease was mainly due to the restructuring of the Company's business to an LVB-focused model, which involves more business customers, including LVB hosts and their agencies who take on a portion of our marketing and promotion functions. Financing Solutions revenues decreased by 5.1% to RMB11.3 million from RMB12 million in the same period of fiscal year 2021, mainly due to the lower service fees of the loan to user. I will now walk you through our major costs and expenses. Cost of revenue decreased by 10.9% to RMB43.5 million from RMB48.8 million in the same period of fiscal year 2021, which was mainly due to a decrease in the IT-related expenses. Sales and the marketing expenses decreased by 28.9% to RMB44 million from RMB61.9 million in the same period of fiscal year 2021, primarily due to optimized spending on branding activities. R&D expenses decreased by 24.8% to RMB21.8 million from RMB29 million in the same period of fiscal year 2021, mainly due to headcount optimization during the first quarter of fiscal year 2021 that resulted in an increase in lieu of compensation payments during that period. General and administrative expenses decreased by 1.4% to RMB23.2 million from RMB23.5 million in the same period of fiscal year 2021, mainly due to a decrease in the allowance for doubtful receivables. Amortization of intangible assets decreased by 8.2% to RMB64.7 million from RMB70.5 million in the same period of fiscal year 2021. Loss from operations was RMB98 million compared to loss from operations of RMB94.9 million in the same period of fiscal year 2021. Net loss attributable to MOGU's ordinary shareholders was RMB95.5 million compared with a net loss attributable to MOGU's ordinary shareholders of RMB88.9 million in the same period of fiscal year 2021. Adjusted EBITDA was negative RMB25.2 million compared to negative RMB17.4 million in the same period of fiscal year 2021. Cash and cash equivalents, restricted cash and short-term investments were RMB776.3 million as of June 30, 2021 compared with RMB803.1 million as of March 31, 2021. During the quarter, we continued to successfully execute on our business transformation towards an LVB-focused model from a financial performance perspective. The strong user retention rate and ARPU are the best validation of our LVB-focused strategy. We have clearly reached an inflection point in that the LVB business will be our main growth driver going forward. Our investment in Ruisha Technology represents a continuous effort to expand and utilize our capabilities to provide services for business customers. In addition, the increasingly challenging market environment may impact our performance in the near term. However, with our disciplined financial strategy of investing and serving our brands and merchants on our platform while diversifying our revenue structure to gain incremental growth, we will also continue to optimize customer acquisition costs and our overall operating efficiency. We remain confident in the long-term growth prospects for our business. So with that, I would like to open the call for Q&A section. Thank you.

[Operator Instructions] Your first question is from the line of Charlie Chen from China Renaissance.

I have two questions here. First one is regarding the competitive landscape. In the announcement, I noticed that your -- the management mentioned that the competition environment actually is increasing. So how does that environment change will impact the operating metrics of your company, including like user acquisition, user retention and also other operating metrics. How does that impact the Company's financials? And also, how does your company believes your competitive strength will be changed or remained going forward? So that's the first question. And my second question is regarding the acquisition of Ruisha as -- I believe the Company has been making a lot of efforts in consolidating or integrating the supply chain by connecting the KOLs and the brands together. So how will Ruisha fit in this integration? And how can Ruisha help the Company to expand the business or do more to further strengthen the Company's competitive edge?

I'll first answer your question about the intensified competition. This is because market participants, is very optimistic about this market. So many more players are entering the market. A small and more KOLs or hosts entering the market, they compete on price. So as a platform, we also compete on price with other platforms. Other than the -- in terms of tight competition on price, the cost of user traffic is also increasing as the Internet users -- the growth of Internet users started to slow down, the price to gain traffic has been increasing fast. So for us, our competitive advantage is one of the early starters of the LVB business, we have very in-depth know-how. So we know the hosts and the merchants and the suppliers very well. For our hosts, the cost of doing this is on our platform is lower than others. The second company strength is that our users are very loyal to our platform, and they have been with us for a long time. So our ARPU is much higher than other platforms. So this combined competitive advantage help us to maintain a reasonable growth despite the intensified competition in the space. So now I'll answer the second question about the Ruisha acquisition. So Ruisha was founded by a group of engineers that will form MOGU two years ago. So they left MOGU to -- founded Ruisha. So also MOGU is one of their angel investors. So the Ruisha team and the MOGU team will share the same vision and value. So during the past 2.5 years, we have been cooperating and keeping a -- kept a close contact. So in MOGU's history, we have accumulated a very in-depth e-commerce technology, a very advanced e-commerce technology and operational know-how. So the Ruisha team, they have used the same technology and know-how to service many, many brands. Ruisha's customers are internationally -- all the biggest brands in China or internationally. So that provides us with a lot of synergy because traditionally the more good customers and brands are small or midsize. So with the acquisition of Ruisha, we'll be able to expand into more brands and that was hard to acquire. So Ruisha's -- 100% of Ruisha's revenue is from service income, so that will diversify our income stream. That diversify MOGU's income stream, which will be more healthy going forward. So after the acquisition of Ruisha, we'll be able to service our existing brand on MOGU's platform, such as private traffic development, like forecasting and cross-border business. So going forward, in our revenue breakdown, we'll have the 2C and 2B components. In the 2B part, we expect to see very fast growth. That's all about the Ruisha acquisition.

[Operator Instructions] Your next question is from the line of Cecilia Yu from [AJ Securities]. Your line is now open.

So there are two questions. First is about the recent regulations on antimonopoly. So with the recent regulation environment, do we -- does the management see more opportunities for companies like MOGU? The second question is about -- it's about, can management elaborate more on the Ruisha acquisition because this is quite a major deal for the Company.

First, I'll answer the question about antimonopoly regulation. So we are still very confident about the Internet space. And we think it will be one -- it will be the fastest-growing space globally and it will provide us with a lot of opportunities. So from my personal point of view, the antimonopoly is about monopoly behavior, not about the size of the companies. So I think going forward, the Chinese Internet market will be more open and which I think will be beneficial for all the participants in the space. And for us, I think it will benefit us as well. On the other hand, as one of the major e-commerce platform in China, we are 1 of the 34 platforms to be heavily regulated by the Chinese authorities. So that will -- so, for us, we'll bear some costs to comply with the regulation. For us, we're quite confident and optimistic about our outlook. We have been complying with the law and regulations during our whole history. So regarding the regulation, I think it will benefit the market and us as well. So for the Ruisha acquisition, I think we have -- I have elaborated a lot on this topic. So the Ruisha acquisition, it's a very important strategic initiative for MOGU. It will diversify our revenue stream. So in the past, we're focused on the 2C market. Going forward, we'll add the 2B income and revenue stream. So that will -- that was about our revenue stream. And so it will help us sustain the healthy growth. In the past 20 years, we can see that the 2C consumer brands have developed very rapidly in terms of scale and global development. Going forward, we want to help them go global, and we want to participate in this trend and to service our customers. And that's one of the...

[Operator Instructions] We have a question from Charlie Chen from China Renaissance. Your line is now open.

So my question is related to the LVB business GMV growth, which we see in this quarter, it's kind of slowing down from previous quarters. I'm just wondering what kind of strategy or considerations the management has been taking to improve the situation, whether it's related to increase the pool of KOLs or getting more brands onboard or increasing the pace of new user acquisitions, et cetera. So what kind of strategies or tactics the Company is taking to try to improve the GMV growth going forward?

Going forward, we will continue to leverage our competitive advantages. So for the strategy initiated, there are three main points. First, our operational captivities with the KOLs, going forward, we'll continue to integrate more KOLs of different categories and also to support our top KOLs, and then we'll develop into more medium and long-tail KOLs. And second is the category expansion, we'll expand to new categories with higher gross profit margins. So we have -- we currently have a team that is working on expanding to new categories. And the third is on users. So our existing users are very loyal to our platforms, but we still think there is space to grow. So, we'll try to attract new users that have never tried live broadcasting shopping before. And -- so for example, we'll work with other platforms to acquire users with a relative low cost. For example, we have been working with Tencent videos to promote our platform.

There are no further questions. I will hand the call over back to Ms. Vivian Wang for closing remarks. Ma'am, please go ahead.

Sure. Thank you, and thank you, everyone, for joining the call today. If you have any further questions or comments, please don't hesitate to reach out to any one of us here at MOGU. This concludes the call today.

And with that, this concludes today's conference call. Thank you for attending. You may now disconnect.