BlueCity Holdings Ltd. (BLCT) Q2 2020 Earnings Call Transcript

BlueCity Holdings Ltd. (NASDAQ: BLCT) Q2 2020 earnings call dated Aug. 26, 2020

Corporate Participants:

Lingling Kong — Investor Relations Director

Baoli Ma — Founder, Chairman of the Board of Directors & CEO

Zhiyong (Ben) Li — CFO

Analysts:

Laura Champine — Loop Capital Management — Analyst

Paul — Oppenheimer — Analyst

Kevin — Canaccord Genuity — Analyst

Presentation:

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the BlueCity’s Second Quarter 2020 Earnings Conference Call. [Operator Instructions]

Now, I will turn the call over to Lingling Kong, Head of Investor Relations for the Company. Ms. Kong, please proceed.

Lingling Kong — Investor Relations Director

Thank you, operator, and hello everyone. Welcome to BlueCity second quarter 2020 earnings conference call. Joining us today are Mr. Baoli Ma, Chief Executive Officer; and Mr. Ben Li, Chief Financial Officer. We release 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 the 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 purposes 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 new 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 take over to discuss our business and financial highlights.

Mr. Ma, please go ahead.

Baoli Ma — Founder, Chairman of the Board of Directors & CEO

[Foreign Speech] Hello everyone, thank you for joining our second quarter 202 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, illustrates raising capital for growth and significantly increase 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 415 million people worldwide, self identified as LGBTQ. We are delicately 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 member 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. In 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 LGBTQ community globally. We are fair to make a wider impact in the world and we believe our passions and execution comparability will enable us to achieve profound success in the future.

[Foreign Speech] Our commitment to connect and service the LGBTQ group within the LGBTQ community is demonstrated by our recently completed acquisition of LESDO, a leading location-based social networking service providers servicing the lesbian community in China. Lesbian [Phonetic] is an important subgroups within our community, with nearly 200 million lesbian globally, 38.5% of the LGBTQ population.

In China, the lesbian market is fragmented with many more 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 elements of our growth strategy is to establish a multi-brand platform that connects and serve multitude of growth within the LGBTQ community. LESDO is our fourth strategic move to execute this element of our strategy.

[Foreign Speech] As we expand our business globally, our initiatives overseas are prudent. We evaluate market readiness, local market size and geopolitical influences before marking entry. We believe the overseas market opportunity is huge and we will selectively expand only to markets that meet our strategy quite serious. Meanwhile, we will continue to strengthen our leading position in in existing markets and improve our monetization capability.

Last but not least, we are proud to be ranked among the top company for corporate social responsibility or CSR. Since day one, 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 report which we issued this month. Those two reports outline our commitment to social responsibility and sustainable development.

[Foreign Speech] Now let me turn the call our to our CFO, Ben, who will provide details on our business and financial performance.

Zhiyong (Ben) Li — CFO

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 $85 million in gross profit. Our solid cash position gives us extra strength and flexibility to expand into new selective markets. Address new groups within the broader LGBTQ community via acquisition and investing technology, products and services.

We got off to a great to start as a newly public company, despite COVID-19 outbreak, slow economic recovery in China and geopolitical uncertainty, we delivered a solid second quarter results anyway. Revenues were RMB247.4 million, up 32.2% year-over-year. Monthly average users for this quarter on the Blued app grew 11.2% year-over-year, reaching RMB6.4 million. Notably, nearly half of our MAUs are outside China. Total paying users increased to 58.5% year-over-year to 458,000 up from 289,000 in the second quarter of 2019.

Net loss for this quarter was RMB3.3 million, significantly improved from the net loss of RMB12.2 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 last year, as Mr. Ma, just mentioned. This acquisition marks a significant milestone in implementing our strategy to serve subgroups within the broader LGBTQ community, based on extensive research of the lesbian market, we found that lesbian user behave similarly to our male users, represents strong user engagement and intending to engaging deeper emotional connections using this platform.

We also have a greater readiness 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 operating system to support its unique, recognizable brand and service in each specific group of our community in future.

LESDO, we are building the foundation for the success of our future acquisitions. Through acquisitions, we can broaden our community beyond the homosexual men and refine and reach our service offering to drive further monetization opportunities. We aim to serve LGBTQ community globally with comprehensive lifetime services. Over the past few years, we have executed on a clear expansion strategy, in particular, we have penetrated overseas markets by leveraging our unique products and services offered through international bridge of blued app.

We start with a strong and centralized technology backbone, augmented by localized 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 way, we held our first ever #StayProudVirtual 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 hosted through our virtual event. The event strengthen the tie and the 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 nine different countries gave great performances, and over 50 influencers and tens of thousands of people participated through blued International. During this very event, the number of daily visits to this live streaming event and the number of live streams online all reached a 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 increase rapidly 31.3 times 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 compounded by the China CSR Research Center. It’s annual report is one of the most authoritative CSR performance index in China. BlueCitys got 61.3 points, while the average score of the 50 international company’s rated was 35.71. We are honored to achieve this ranking and it demonstrates our commitment to CSR efforts. Furthermore, on August 18, we released our first ESG and CSR reports. Please refer to our Company website for details.

Now I will go through our operational and financial highlights for this quarter. Before I go into details about our financial results, please note that all numbers presented are RMB, and for the second quarter of 2020 unless stated otherwise. All percentage changes are on a year-over-year basis, unless otherwise specified.

Our total revenue increased by 32.2% to RMB247.4 million. Revenue from live streaming services were RMB210.2 million, up 25.2% primarily driven by our diverse services and the rich content offering in China and globally. Total paying users for live streaming services increased by 35.3% to 174,000. ARPPU decreased 7.7% to 1,206, as our promotions encouraging users to develop the habit of paying for services.

Revenue from membership services was RMB15.8 million, up 129.6%. Our total 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 from membership services. We will continue to actively explore new ways to enrich our service offering and accelerate user consumption habits.

Revenues from advertising was RMB10.7 million, up 17.8%. Other revenues were RMB10.7 million, more than doubled compared with RMB3.2 million for the same period last year. The increase was mainly attributable to the growth of our merchandise sales to the key health, our health-related service.

Total transaction value facilitated by e-Health increased by approximately 230%. Cost of revenues increased by 30% to RMB170.3 million. Gross profit was RMB77.1 million, up 37.4%, representing gross margin of 31.2%, 1.2 percentage points higher than last year.

Revenue sharing 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, with 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 RMB82.6 million, up 24%. Selling and marketing expenses were RMB41 million, up 33.1%. The increase in sales and marketing was mainly due to the higher advertising and promotion expenses associated with global expansion and an increase in headcount in sales and marketing.

Technology and development expenses were RMB31.3 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 increase in headcount in technology and development personnel.

G&A expenses were RMB10.3 million, up 194.3%. The increase was mainly due to increase of staff cost and higher professional service fees.

Net loss was RMB3.3 million compared with a net loss of RMB12.2 million last year. Net loss margin was 1.3% compared with 6.5% in the second quarter of 2019. Adjusted net loss was RMB3.3 million compared with adjusted net loss of RMB8.2 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 were also broadened our user base within the LGBTQ community. We are prudent global expansion and in selective acquisitions. We are confident in our long-term growth prospects due to our diverse service offerings, deep penetration in China and a growing global expansion.

With that, let me also guidance for the second half of 2020. We expect net revenues in the range of RMB575 million to RMB615 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.

Questions and Answers:

Operator

[Operator Instructions] And your first question comes from the line of Laura Champine from Loop Capital Management. Laura, your line is now open.

Laura Champine — Loop Capital Management — Analyst

Thanks for taking my question and 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 membership to paid memberships, and what your initiatives are to do that?

Lingling Kong — Investor Relations Director

Hi, Laura. This is Lingling. Let me to translate the question in Chinese and Mr. Ma, will help me to address. [Foreign Speech].

Baoli Ma — Founder, Chairman of the Board of Directors & CEO

[Foreign Speech] Hi, Laura, just let me to translate Kong answer. You can see that in the second quarter, revenues from membership services grow quite significantly. And this [Indecipherable] by product offering to provide better experience to our users. And going forward, we will continue to refine our product 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 China, and we think that the opportunity for — this market is huge. We will continue to low — motto and and try to enhance monetization capability overseas. I hope that answers your question, Laura?

Laura Champine — Loop Capital Management — Analyst

Yes, thank you. 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?

Lingling Kong — Investor Relations Director

Hi. Again, let me translate the question, Laura. [Foreign Speech]

Baoli Ma — Founder, Chairman of the Board of Directors & CEO

[Foreign Speech] Hi, Laura, I’m very happy you bring this question. First off, our mission is to be the service provider for all sub-groups of the LGBTQ community. And LESDO is a leading LBS networking service providing in China, and it has a long history of operation. The founder and the team of LESDO, they have — they mainly are lesbians and they have deep understanding and years of experience in the market. And they also also have achieved quite good market awareness during the past years, such as they produced short film and video that is — recognized in the market. But 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 financial support, technological assistance and fully leverage our each others operating experience to deliver better service to our members. And as you said, due to — as I said earlier, due to the size is relatively small of LESDO at the current stage. But we have fully confidence that — for the team — for our teams to work together, we will achieve quite remarkable progress in the coming years.

Laura Champine — Loop Capital Management — Analyst

Thank you.

Lingling Kong — Investor Relations Director

Operator, next please?

Operator

Yes. And our next question comes from the line of Paul [Indecipherable] from Oppenheimer. Your line is now open.

Paul — Oppenheimer — Analyst

[Foreign Speech] Okay. I will translate myself, good evening, Management for taking my question. So I have three questions. The first is about MAU and paying user growth. Our paying user growth pretty nicely this quarter. I mean you grow a little bit slower than that. So I was wondering what is our strategy in the last 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 the second quarter. And so I was just wondering what is the factor, the driver behind this acceleration, is that related to our LESDO acquisition or if it’s not related to that, which line of the revenue would it be live streaming membership is going to accelerate the second half. And my last question, I want to follow up on LESDO 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 growth rate apps as successful as the blue app we have today. Thank you very much.

Baoli Ma — Founder, Chairman of the Board of Directors & CEO

[Foreign Speech] Hi, Paul. Just let me translate Mr. Ma’s answer for it, okay. In terms of MAU and paying user growth. Yes, you can see accelerating growth in our — in the number of paying users. But that’s not necessarily related to the growth of MAU, because you know as we mentioned during the conference call, we continue to enhance monetization models in our existing services and products. So that’s why we have put lot of efforts 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 models to our membership services to further driving up the paying ratio. And in the long-term, we focus both growth of MAU as well as the number of paying users. For your second question, the accelerate 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 answer your question.[Foreign Speech] Just to add one point, that as you know that we tried to diversify our revenue mix. In addition to the — whatever services we had, we also have — health and family planning services. 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 upwards. Looking at the second half, we will see an increased revenue from family planning compared to the same period last year.

Zhiyong (Ben) Li — CFO

[Foreign Speech] I will answer the third question form Oppenheimer in English. The question was — you’re talking about the purchase price of this lesbian app acquisition. As Mr. Ma, earlier mentioned that — very this app was still in a very early stage of monetization, though we had 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 — closed this acquisition, I think today, excuse me yesterday, and we truly believe that with this synergy going forward are being built up in the low — and the sufficient and profound operation knowledge, know-how from blued, we can that lesbian app empowered and to a much efficienct extent for both user growth perspective and for the monetization features perspective.

Paul — Oppenheimer — Analyst

[Foreign Speech] And I would translate for myself. Yeah, 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 number one, number two, the lesbian online community in China. Yeah, I just want to know a little bit more about the competitive landscape for the lesbian market. Thank you.

Zhiyong (Ben) Li — CFO

This is Ben, I will answer the question directly to you. LESDO is actually was one of the top three lesbian players in China and have been in — dialog with us for a while. And considering the synergy we have built over several months, if not, we conclude this deal for now. Yeah.

Paul — Oppenheimer — Analyst

Okay. Thank you, Mr. Ma and Ben. Thank you very much again.

Zhiyong (Ben) Li — CFO

Okay. Operator?

Operator

Thank you so much. And your next question comes from the line of Kevin [Indecipherable] from Canaccord Genuity. Your line is now open.

Kevin — Canaccord Genuity — Analyst

Hi, thanks for taking my questions. 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?

Lingling Kong — Investor Relations Director

Hi. I will translate your question. [Foreign Speech]

Baoli Ma — Founder, Chairman of the Board of Directors & CEO

[Foreign Speech] So there is still and we can see the time used in the app and the level of engagement are generally higher compared an average. And we see that the level of engagement, the time spend, generally increased 30% compared to our average. However, there are some services that require human interaction like family planning and health consulting has — was marginally affected. But as you know family planning and e-Health [Indecipherable] together contributes less than 5% of our total revenue. So the in hand or quite. And in addition to COVID-19, we’re inviting house expert online to our app to share the way to fight against the virus, and also make virus donation to help people fight against the virus. So once that being done — trading our commitment to social responsibility.

Kevin — Canaccord Genuity — Analyst

Great, thank you. And on lives to remain 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 help to drive user growth in live streaming or monetization such as any new product?

Baoli Ma — Founder, Chairman of the Board of Directors & CEO

[Foreign Speech] Yes, like streaming is currently contributing largest revenue pie to our total revenue, and we have been put a lot of efforts to further diversify our revenue mix. And talking about live streaming, we have to say that thanks to our market-leading share position, we can — brand recognition and the market awareness through the community and our community is high — 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 into the future, we will continue to invest in live streaming content and we will do — we will — lots of promotional activities to further drive up revenue growth. And when we look at the — DAU penetration in live streaming services, the DAU penetration rate is only around 20%. So we will do, we will promote further online events and activities to drive up DAU penetration. In addition that, as we go out life training model in overseas markets, those live streaming services are very well received by the market. So we can say that we have huge — or we can say that overseas markets stiil have a huge potential in live streaming services alone. I hope that answer your question.

Kevin — Canaccord Genuity — Analyst

Yes, thank you very much.

Operator

Thank you, so much. There were no further question at this time. I would like to get back to Mr. Li for closing remarks.

Zhiyong (Ben) Li — CFO

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?

Operator

[Operator Closing Remarks]