MOGU Inc. (MOGU) Q2 2021 Earnings Call Transcript

MOGU Inc. (NYSE: MOGU) Q2 2021 earnings call dated Nov. 30, 2020

Corporate Participants:

Rene Vanguestaine — Investor Relations

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

Raymond Huang — Chief Strategy Officer

Analysts:

Charlie Chen — China Renaissance — Analyst

Locky Lau — AJ Asset Management — Analyst

Veronica Chen — China Renaissance — Analyst

Presentation:

Operator

Ladies and gentlemen, thank you for standing by, and welcome to MOGU Second Quarter Fiscal Year 2021 Financial Results. [Operator Instructions]

I would now like to turn the call over to Mr. Rene Vanguestaine. Please go ahead.

Rene Vanguestaine — Investor Relations

Thank you, Amy. 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 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 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.

On the call tonight from MOGU are Mr. Shark Chen Qi, Chairman and CEO; Mr. Raymond Huang, Chief Strategy Officer; Mr. Le Li, Investor Relations Director; and Ms. Huiqing Eli Wang, Financial Controller. Mr. Chen will review the business operations and company highlights, followed by Mr. Huang, 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]

Well, hello, everyone. Thank you for joining us on the second quarter results announcement of the fiscal year 2021 today.

[Foreign Speech]

In the past quarter, we continue to see a high growth rates in the live video broadcasting e-commerce. The GMV increased by 42.2% year-over-year to RMB2.3 billion in the second quarter, contributing 74.4% of the total GMV. MOGU Live has essentially become our growth engine as the first mover of live e-commerce. During the last four years, we have established a very differentiating shopping experience, which enable us to capture more growth opportunities in the e-commerce space in China.

[Foreign Speech]

Not only do we provide quality and affordable products directly from the manufacturers to our customers, we also offer much more through our KOLs, such as diversified fashion content, immersive interaction and companionship. This experience strengthen our customer engagement. Customers continue to spend longer time on our app and shop with higher frequency. Second quarter is a typical quarter with seasonality. Despite that, we have adopted a more prudent approach in terms of the sales marketing. The number of our LVB active buyers grew 20.7% year-over-year. In addition, our social sharing and referral program is working very well to acquire more customers with precise targeting and higher cost efficiencies.

[Foreign Speech]

We are continuously enriching the mobile shopping experience. We have launched a version of short video detail page, which captures the best product presentation by our KOLs in their live shows, different from the traditional static detail page. This innovation allows our users — allows our customers limited inside or outside of the MOGU Live room to enjoy KOLs’ explanation, fitting and matching advice and creating a more efficient and effective live shopping experience.

[Foreign Speech]

To build a more sustainable live e-commerce ecosystem, we’ll continue to focus on new KOL incubation and supply chain empowerment. During the Double Eleven live promotion, our top KOLs continue to break the record. Two KOLs have each achieved over 200 million in sales over one live session, marking them the top KOLs in the whole industry. Our KOLs also have the highest value preference across all the live e-commerce platforms.

[Foreign Speech]

Our supply chain empowerment plays a critical role in empowering KOLs and benefiting our consumers. In early November, we conducted live video broadcast to trace seven major apparel production zones in China. This activity helped local manufacturers sell more products in a single live session than they otherwise needed to over a few months. MOGU Live simplify and accelerate the product circulation, improve the efficiency of various parties and deliver rich value to our customers.

[Foreign Speech]

We aim to deliver more value to our customers. We will continue to innovate MOGU Live and establish a better fashion shopping experience for our customers.

Raymond Huang — Chief Strategy Officer

Thank you, Shark. Thanks again, everyone. This is Raymond speaking. Thank you for joining our conference call today. So now I will walk you through our second quarter fiscal year 2021 financials. We believe year-over-year comparison is the best way to review our performance. Unless otherwise stated, all percentage changes I’m going to give you will be on that basis.

Let’s review the financials first. Our GMV for the second quarter of fiscal year 2021 was RMB3,112 million, a decrease of 25.3% year-over-year. GMV for 12 months period ended September 30, 2020 was RMB14,951 million, a decrease of 16.1% year-over-year. Our focus has been growing the GMV from live video broadcasting, which has increased by 42.2% year-over-year to RMB2,316 million. LVB associated GMV for the second quarter of fiscal year 2021 accounted for 74.4% of the total GMV. Active buyers of the LVB in the last 12 months period ended September 30, 2020, grew by 20.7% year-over-year to 3.5 million.

So let’s now turn to revenues. During this quarter, total revenues decreased by 33.1% to RMB112.5 million from RMB197.9 million during the same quarter of the fiscal year 2020. Commission revenue decreased by 32% to RMB68.9 million from RMB101.3 million in the same period of fiscal year 2020, primarily due to the restructuring of the company’s business towards a LVB focused model. Commission revenue from the LVB business grew year-over-year continuously and it was in line with the continued year-over-year growth in the LVB associated GMV.

Marketing services revenues, which is mainly generated from our marketplace business unit, decreased by 71.5% to RMB18 million from RMB63.1 million in the same period of the fiscal year 2020. The decrease was primarily due to restructuring of the company’s business towards a LVB focused model.

I will now walk you through our major costs and expense. Cost of revenue decreased by 40.1% to RMB45.5 million from RMB76 million in the same period of fiscal year 2020, which was primarily due to a decrease in the cost associated with decreased online direct sales and IT-related expenses.

Sales and marketing expense decreased by 73.5% to RMB47.9 million from RMB180.8 million in the same period of fiscal year 2020, primarily due to optimized spending on user acquisition and user incentive programs resulted from the restructuring of the company’s business, and also as a measure, we conducted to counter the adverse impact of copyrighting.

Research and development expenses decreased by 45% to RMB27.7 million from RMB50.3 million in the same period of fiscal year 2020, primarily as a result of headcount optimization we conducted to counter the adverse impact of COVID-19.

General and administrative expenses decreased by 37.4% to RMB24.7 million from RMB39.5 million in the same period of fiscal year 2020, primarily due to a decrease of payroll expenses. Amortization of intangible assets decreased by 1.4% to RMB75.8 million from RMB76.8 million in the same period of fiscal year 2020. Loss from operations was RMB100.5 million compared with loss from operations of RMB223.6 million in the same period of fiscal year 2020.

Net loss attributable to MOGU’s ordinary shareholders was RMB93.7 million compared with a net loss attributable to MOGU’s ordinary shareholders of RMB326.6 million in the same period of fiscal year 2020. Cash and cash equivalents, restricted cash and short-term investments were RMB802.5 million as offer September 30, 2020 compared was RMB1,095.4 million as of March 31, 2020.

In summary, we also have a subsequent event in October 2020, one of the company’s investees repurchased a majority portion of the company’s investments in the investees for a total cash consideration of approximately US$16 million, equivalent to RMB107.1 million, of which the US$14.4 million was received in October 2020, as a result again from the investments will be recognized in the quarter ended December 31, 2020.

In summary, from the financial perspective — from financial performance perspective plus during the progress of business restructuring, shifting our growth engine from traditional e-commerce to live e-commerce. Looking forward, our product innovation and our dedication to supply chain development will deliver a very differentiated fashion shopping experience to our customers. MOGU Live will drive our growth going forward.

So with that, I would like to open the call for Q&A.

Questions and Answers:

Operator

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

Charlie Chen — China Renaissance — Analyst

[Foreign Speech]

Raymond Huang — Chief Strategy Officer

Okay. Well, maybe I will just translate the question and answers for the benefit of the audience. So the question was, the — so the question is about the slower growth range of the GMV from the LVB associated business over the last quarter. And Shark’s answer to that was, number one, Q2 was actually a season with — it was a quarter with seasonality. And number two, apparently, we’re still seeing some leftover effect from the copyrighting situation because a lot of apparel factory is actually not 100% prepared and sometimes they are running out of capacity as well as raw materials they need to produce the apparels. And number three, compared with the previous quarter, I think the previous quarter from 2019 was actually quite strong quarter. So the previous quarter was actually grew out of a lower base. And this quarter, it’s actually comparably a stronger quarter of last year.

So that’s the three reasons that Shark addressed the question about the slower growth rate. And going forward, I think we have achieved a very good Double Eleven promotion. And we’re seeing very strong performance from the live video broadcasting business. And we’re very confident this quarter. And as we have achieved our goals in the Double Eleven promotion and we are seeing very, very good results from this quarter so far.

Charlie Chen — China Renaissance — Analyst

[Foreign Speech]

Operator

[Operator Instructions] Your next question comes from the line of Locky Lau with AJ Asset Management. Locky, your line is open.

Locky Lau — AJ Asset Management — Analyst

[Foreign Speech]

Raymond Huang — Chief Strategy Officer

So maybe Locky, I’ll just translate question and answer at the same time for you. So the question was about the Double Eleven performance we have, maybe basically just one month ago. And the other question is about the cash we have received from the investees repurchase of the investment. So number one on the Double Eleven promotion, apparently, it’s a very important promotion for all the e-commerce platforms in China. And this year, again, our focus is really on the MOGU Live, our live video broadcasting business. And apparently, this year we have delivered very, very strong results.

I think a few key points I want to emphasize is that, number one, our top KOLs, they have each delivered over 200 million sales over one live session. So that’s very, very impressive results. That’s basically 200 million sales over just a few hours. That’s extremely competitive results compared with all other KOLs from all other live e-commerce platforms. And that shows our — that’s basically a result of our long-term dedication to live business and our long-term dedication to the supply chain empowerment and how we empower our KOLs.

And the other question was about the repurchase of the investments. So basically, this investment has nothing to do with other share repurchase or other decisions we have made in capital markets. it’s purely driven by — and because you know we have actually make some investments in relevant companies and even relevant industries that we see appropriate.

So one of the portfolio companies we have achieved very, very good growth over the last few years. And they are — and they have event that we can potentially exit part of our holdings from the company. So that’s why we received some of the cash from the — from this portfolio company, and that’s why we received the cash. Apparently this cash will also be reflected in our cash balance as of end of December 31 of the 2020. And we can assure you that this has nothing to do with the timing of the repurchase of our own shares. We’ve repurchased our own shares last quarter was primarily because we have a view that the companies market cap as of today does not reflect or does not fully reflect the full market cap — the full value of the company or the long-term growth prospect of mobile apps business.

Locky Lau — AJ Asset Management — Analyst

Okay. Thank you.

Operator

Your next question comes from the line of Veronica Chen with China Renaissance. Veronica, your line is open.

Veronica Chen — China Renaissance — Analyst

[Foreign Speech]

Thanks, management for taking the question. My question is regarding the number of active buyer. We have seen 12-month active buyer decline on a quarter-over-quarter base. And just curious about what is the reason behind and how should we look at the user growth going forward? Well, I understand this third quarter is the low season for us, so any color about the fourth quarter and the coming year will be helpful. Thank you.

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

[Foreign Speech]

Raymond Huang — Chief Strategy Officer

Yes. Maybe I will just quickly translate Shark’s answer. So number one, as you can see that we are actually going through a transition from the traditional e-commerce to the live e-commerce. And apparently, we need to change our tactics as well. So we are seeing that live users tend to have much higher ARPU and a much, much higher frequency and very, very strong loyalty to the platform. So we actually value these customers more than the traditional e-commerce customers.

Honestly, due to the competition, I think in last few years you can see that the cost of customer acquisition has been increasing quite rapidly. So we reduced our marketing and — sales and marketing expense in the traditional competition for e-commerce customers. We’re actually more focused on the customers from the live video broadcasting channel.

So this change of tactics, as you can see, has two results. Number one, we are seeing that our total number of active buyers of LVB has been increasing. And number two, the total expense of the sales and marketing has been — has declined dramatically.

Veronica Chen — China Renaissance — Analyst

[Foreign Speech]

Well, my next question is about the take rates. I have to know take rates shows the down trend in this quarter. So could you please elaborate more about it and how is the trend going forward in the following quarters? Thank you.

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

[Foreign Speech]

Raymond Huang — Chief Strategy Officer

So I will just quickly translate Shark’s answer. So the question was about the decline of the take rate of last quarter. Apparently, we are seeing a few reasons behind it. Number one, we are seeing in the restructuring process a progress of shifting from our traditional e-commerce to live e-commerce. The take rate for the traditional e-commerce usually was much higher than the live e-commerce. And we’re seeing that the live e-commerce takes up a greater percentage of the total GMV in last quarter. So that’s number one. We are seeing that the live e-commerce has lower take rate, which actually dragged down the overall take rate.

And secondly, going forward, we are thinking that the take rate from the live e-commerce part has room to improve because the KOLs is actually very loyal to the platform and their fans are very, very sticky to the platform as well, and we have all the exclusivity agreement with them. So going forward, it is possible that our TR, take rate, can potentially go up.

And number three, if we don’t look at the revenue side, we don’t look at the take rate side and we’re just looking at the cost side, we can see that the cost from the — the platform cost has been decreasing over last two years because the KOLs actually taking over a lot organization burden from the platform. They are hiring a lot of people to do all the product curation, product selection. They are hiring a lot of people to do all the quality control so that we, MOGU, the platform, doesn’t need to take — doesn’t need to hire as many as we used to, which is evident in our cost of revenue, decreased by 40%, and in our research and development, decreased also by 45%. You can see that the platform expense and cost has come — has been coming down over the last few years.

Veronica Chen — China Renaissance — Analyst

[Foreign Speech]

Let me translate my question first. Well, in this quarter, we can see we did a good job on cost control, and our non-GAAP net loss has narrowed. So should we expect breakeven point within this year? Thank you.

Raymond Huang — Chief Strategy Officer

Okay. Thank you, Veronica. I will just answer the question directly. So I think breakeven is very important goal for our company in 2020 and in 2021, fiscal year 2021. I think it’s a very important milestone, but we don’t limit our financial performance because of the breakeven point. We are actually thinking of, from a long-term perspective, live video broadcasting e-commerce has a very, very long runway, and there is a lot of things we can do to grow this business, to make this bigger. So breakeven is very important milestone, but we wouldn’t be able to give — we don’t provide a very specific guidance in terms of timing or in terms of when we can or the specific timing that we will definitely do that.

From a big picture perspective, you can see that the loss from operations has been decreasing dramatically and the company’s cash positions against cash flow positions is getting increasingly healthy. So we think our financial positions are a much better shape than a year ago. We’re definitely — keep in mind that we want to do — we want to make sure that breakeven is possible in the future, but we don’t give very specific guidance. But we want to assure all the investors that we are trying to our very, very best to capture all the potential possible growth opportunities in the live e-commerce, especially in China.

Veronica Chen — China Renaissance — Analyst

Okay. Thank you, Raymond.

Operator

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

Charlie Chen — China Renaissance — Analyst

[Foreign Speech]

Raymond Huang — Chief Strategy Officer

So the question was about the incubation of the new KOLs. So basically, as we can see, the top KOLs in our MOGU platform are doing very, very well, so what the company’s strategy going forward for the KOL incubation?

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

[Foreign Speech]

Raymond Huang — Chief Strategy Officer

So thank you, Chuck. So I’m going to translate the answer very quickly. So the question is about the KOL incubation. Apparently, MOGU is the plan that has been extremely dedicated to KOL incubation. We have all the very comprehensive tiering and empowerment training system to make sure that the KOL can grow and can thrive on our platform. So our operational team, their key KPI or their key objective in their day-to-day operation is to make sure that the KOL can grow and thrive from our platform. They are definitely the majority of our GMV contributor on the MOGU platform and they definitely will be the key growth driver for us going forward.

So we don’t disclose very specific number of how many KOLs actually delivered more than 10 million sales over whatever period, but we are seeing that the — a lot of the new faces are actually popping on our platform. We’re seeing new KOLs are performing very well on our platform. Thanks to the very strong empowerment of our supply chain team and they can actually deliver very, very affordable and at the same time, very differentiating products to our customers and they can recognize — and they can be recognized and they can also be well received by our customers.

So as you can see, Double Eleven was a major event that we dedicated a lot of resources to our top two KOLs. But going forward, when it goes to the December promotion event, we will actually replicate our experience, replicate our operational know-how with more mid to long tail KOLs and to make sure that they can grow and thrive as well. They can sell more. So that’s our goal going forward, and that’s the key KPI of our operation team going forward.

Charlie Chen — China Renaissance — Analyst

[Foreign Speech]

Operator

There are no further audio questions. I will turn the call back over to Mr. Rene Vanguestaine for closing remarks.

Rene Vanguestaine — Investor Relations

Thank you, Amy. 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. Good night all.

Operator

[Operator Closing Remarks]