Mogu Inc (MOGU) Q1 2022 Earnings Call Transcript

Mogu Inc (NASDAQ: MOGU) Q1 2022 earnings call dated Aug. 27, 2021

Corporate Participants:

Vivian Wang — Investor Relations

Qi Chen — Co-Founder, Chairman of the Board of Directors and Chief Executive Officer

Qi Feng — Financial Controller

Analysts:

Charlie Chen — China Renaissance — Analyst

Cecilia Yu — AJ Securities — Analyst

Presentation:

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the MOGU First Quarter of Fiscal Year 2022 Earnings Conference Call. [Operator Instructions] Thank you.

Now, I would like to hand the conference over to your speaker today, Ms. Vivian Wang [Phonetic]. Thank you. Please go ahead.

Vivian Wang — Investor Relations

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 Business Wire 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 US 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 US 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 from 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 session.

Now, it is my pleasure to introduce our Chairman and CEO, Mr. Chen. Please go ahead.

Qi Chen — Co-Founder, Chairman of the Board of Directors and Chief Executive Officer

[Foreign Speech] Hello, everyone. Thank you for joining us on our first quarter of fiscal year 2022 earnings conference call today.

[Foreign Speech] During the fiscal year 2021, we successfully completed 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 Live eCommerce business continued to maintain its steady growth. The GMV from LVB increased by 14.7% year-over-year to RMB2.6 billion, contributing to 90.8% of the total GMV during the period.

[Foreign Speech] As we look ahead, we will continue to enhance the supply chains on our platform. On one hand, we will further improve the overall quality of our platform by only offering products that have the highest 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 hosts, 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.

[Foreign Speech] On July 26, we completed the acquisition of Hangzhou Ruisha Technology Co., Ltd., which I will refer to as Ruisha Technology. MOGU beneficially owns a 59.62% equity interest in Ruisha Technology. Ruisha Technology is committed to providing one-stop and customized services for full-domain operations for brands from a wide variety of industries, ranging from clothing, shoes and bags, education, maternal and infant health, food, as well as cosmetics and skincare. Its customers include well-known brands such as Li-Ning [Phonetic], Zara, [Indecipherable] Gujin [Phonetic] and Elie [Phonetic]. Its revenue has increased by 13.4 times in recent two years. And MOGU’s acquisition of Ruisha Technology is of strategic significance.

[Foreign Speech] After establishing our Live eCommerce 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 supplier partners through the integration of our transaction system, customer service system 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 operation and from traditional e-commerce to live e-commerce model. Thanks to our innovative and forward-looking ecosystem, we’re now in a mature capacity to effectively service our brand partners.

[Foreign Speech] The acquisition of Ruisha Technology embodies the expansion and [Indecipherable] vision of a 2B service capabilities that we have accumulated over the years. Ruisha Technology will focus on helping those brands that hope to operate online but lack the 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.

[Foreign Speech] 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 equity value of up to $10 million during the 12 months period starting from the date of the announcement of the share repurchase program.

[Foreign Speech] With that, I will turn the call to Feng Qi to go over the financial details.

Qi Feng — Financial Controller

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 otherwise stated, all percentage change I’m going to mention will be on that 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 of fiscal year 2021.

Commission revenues decreased by 23.7% 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 revenues, 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 towards an LVB-focused model, which involves more business partners, 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 services fees on the loan to users.

I will now walk you through our major cost 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 marketing expenses decreased by 28.9% to RMB44 million from RMB61.9 million in the same period for 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 layoff 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 2012.

Net loss attributable to MOGU’s ordinary shareholders was RMB95.5 million compared with a net loss contributable 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 a 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 customer.

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.

Questions and Answers:

Operator

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

Charlie Chen — China Renaissance — Analyst

[Foreign Speech] Thanks management to taking my questions. I have two questions here. First one is regarding the competitive landscape. In the announcement I noticed that your — the management mentioned the competition environment actually increasing. So, how does that environment change will impact the operating metrics of your Company, including like user acquisition, user retention and also other — for your metric, how does that impact the Company’s financials? And also, how does — your Company believes your competitive strengths will be changed or remains 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 KOL standard 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? Thank you.

Qi Chen — Co-Founder, Chairman of the Board of Directors and Chief Executive Officer

[Foreign Speech] Okay. I’ll translate now. 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.

[Foreign Speech] As more and more KOLs or hosts entering the market, they compete on price. So, as a platform, we also compete on price with other platforms.

[Foreign Speech] Other than the intensified competition on price, the cost of user traffic is also increasing as the Internet users — as the growth of Internet users started to slow down, the price to gain traffic has been increasing fast.

[Foreign Speech] 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 of the — and suppliers very well. For our hosts, the cost of doing business on our platform is lower than others.

[Foreign Speech] The second competitive strength is our users. 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, complying with the — so this combined competitive advantages help us to maintain a reasonable growth despite the intensified competition in this space.

[Foreign Speech] So, now, I’ll answer the second question about the Ruisha acquisition. So, Ruisha was founded by a group of engineers that were from MOGU 2.5 years ago. So, they left MOGU to found Ruisha. So — also MOGU is one of their enduring vessels.

[Foreign Speech] So, the Ruisha team and the MOGU team, we shared the same vision and value. So, during the past 2.5 years, we have been cooperating and kept a close contact.

[Foreign Speech] So, in MOGU’s history, we have accumulated a very in-depth e-commerce technology. We’re 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.

[Foreign Speech] Ruisha’s customers are internationally — are the biggest brands in China or internationally. So, that provides us with some — with a lot of synergy, because traditionally MOGU’s customers and brands are small or mid-size. So, with the acquisition of Ruisha, we’ll be able to expand into more brands and — that was hard to acquire.

[Foreign Speech] So, Ruisha — 100% of Ruisha’s revenue is from service income. So, that will diversify our income stream — that will diversify MOGU’s income stream, which will be more healthy going forward.

[Foreign Speech] So, after the acquisition of Ruisha, we will be able to service our 16 brand on MOGU platform, such as power [Phonetic] traffic development, live broadcasting and cross-border business.

[Foreign Speech] 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.

Charlie Chen — China Renaissance — Analyst

[Foreign Speech]

Qi Chen — Co-Founder, Chairman of the Board of Directors and Chief Executive Officer

[Foreign Speech]

Vivian Wang — Investor Relations

Operator, we can have the next participant.

Operator

Thank you, ma’am. [Operator Instructions] Your next question is from the line of Cecilia Yu [Phonetic] from AJ Securities. Your line is now open.

Cecilia Yu — AJ Securities — Analyst

[Foreign Speech]

Vivian Wang — Investor Relations

I’ll translate the questions first. So, there are two questions. First is about recent regulations on anti-monopoly. So, with the recent regulation [Indecipherable] does the management see more opportunities for companies like MOGU?

The second question is about it — it’s about — can management elaborate more on the Ruisha acquisition? Because this is quite a major deal for the Company.

Qi Chen — Co-Founder, Chairman of the Board of Directors and Chief Executive Officer

[Foreign Speech] First, I’ll answer the question about anti-monopoly 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 [Phonetic].

[Foreign Speech] So, from my personal point of view, I feel the anti-monopoly is about monopoly behavior, not about the size of the companies.

[Foreign Speech] 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 this space. And for us, I think, it will benefit us as well.

[Foreign Speech] On the other hand, it’s one of the major e-commerce platform in China where one of the 34 platforms to be heavily regulated by the Chinese authorities. So, that will — for us, we’ll bear some costs to comply with the regulation.

[Foreign Speech] 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.

[Foreign Speech] So, for the Ruisha acquisition, I think we have — I have elaborated a lot on this topic. So, the Ruisha acquisition is 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 diversify our revenue stream and — so it will help us sustain healthy growth.

[Foreign Speech] 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 very [Speech Overlap].

Vivian Wang — Investor Relations

Operator, do we have any more questions?

Operator

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

Charlie Chen — China Renaissance — Analyst

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

Qi Chen — Co-Founder, Chairman of the Board of Directors and Chief Executive Officer

[Foreign Speech] Going forward, we will continue to leverage our competitive advantage. So, for the strategic initiative, there are three main points. First, our operational capabilities 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 — integrate more mid-tier and long-tail KOLs.

And second is the category expansion. We’ll expand 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 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.

Charlie Chen — China Renaissance — Analyst

[Foreign Speech]

Operator

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

Vivian Wang — Investor Relations

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. That — this concludes the call today.

Operator

[Operator Closing Remarks]