Yunji Inc. (YJ) Q3 2020 Earnings Call Transcript

Yunji Inc. (NASDAQ: YJ) Q3 2020 earnings call dated Nov. 26, 2020

Corporate Participants:

Kaye Liu — Investor Relations Director

Shanglue Xiao — Chairman of the Board of Directors and Chief Executive Officer

Chen Chen — Chief Financial Officer

Presentation:

Operator

Good morning and good evening ladies and gentlemen. Thank you, and welcome to Yunji’s Third Quarter 2020 Earnings Conference Call. With us today are Mr. Shanglue Xiao, Chairman and Chief Executive Officer; Mr. Chen Chen, Chief Financial Officer; Mr. Hui Ma, Chief Strategy Officer and Chief People Officer; Mr. Chengqi Zhang, Vice President of Finance; and Ms. Kaye Liu, Investor Relations Director of the Company.

Now, I would like to hand the conference over to your first speaker for today, Ms. Kaye Liu, IRD of Yunji. Thank you. Please go ahead, ma’am.

Kaye Liu — Investor Relations Director

Hello, everyone. Welcome to our third quarter 2020 earnings call. Before we start, please note that this call will contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that are based on our current expectations and current market operating conditions and relate to events that involve known or unknown risks, uncertainties and other factors of Yunji and its industry. These forward-looking statements can be identified by terminologies such as will, expect, anticipate, continue or other similar expressions. For a detailed discussion of these risks and uncertainties, please refer to our related documents filed with the US SEC. Any forward-looking statements that we make on this call are based on assumptions as of today and are especially qualified entirely by cautionary statements, risk factors and details of the company filing with the SEC. Yunji does not undertake any obligation to update this statement, except as required on applicable law.

With that, I will now turn over to Shanglue Xiao, Chairman and CEO of Yunji.

Shanglue Xiao — Chairman of the Board of Directors and Chief Executive Officer

[Foreign Speech]

Hello, everyone, and welcome to Yunji’s third quarter 2020 earnings call. In the third quarter, we generated a total GMV of RMB9.4 billion and total revenues of RMB1.07 billion due to our promotion of fast-moving merchandise with high repeat purchase rates. And moreover, we also reduced our net loss by 14.9% year-over-year as the timely upgrades we made to our membership enrollment system helped us continue increasing the number of transacting members on our platform, which reached 13 million for 12 months ended September 30, 2020.

Yunji has been on the path to becoming a full-fledged membership-based social e-commerce platform for the past five years. Over the course of this period, we have made many changes and continued to explore new forms of the membership to further improve the value of our membership model. As a result, we have not only provided our members with more benefits and a better e-commerce experience, but also better cultivating [Phonetic] our members’ growing passion for sharing. Meanwhile, we have also focused on helping our members to honing their sales potential by providing them with additional sales training. By providing our members with education and training, we have further increased members’ knowledge also in different segments and enabled them to earn stable income as either streamers or group leaders in our community.

Since our IPO, as we strive to create a win-win value proposition for all participants in our ecosystem, we have continued to invest in upgrading our supply chain and optimizing our community to become China’s leading membership-based social e-commerce platform. More specifically, we have also continued to develop and introduce Medicaid products into our communities by continuously optimizing our supply chain and discover more members with sales potential through introducing more products that better stimulate member-sharing activities.

In terms of specific product categories, we are very focused on beauty, food and health supplements. As such, in order to better cultivate mass scale products, we maintained ongoing investment into these private label and joint venture brands during the third quarter. As a result of Yunji’s investments, many quality suppliers and leading manufacturers have been able to adapt their business and grow their online traffic to persist in the face of an evolving business environment. In addition, these suppliers and manufacturers also provided an platform to users with more premium products at attractive prices. For example, during this year’s Double Eleven shopping festival, our private label and joint venture brands contributed nearly 20% of our total festival GMV. And moreover, during the third quarter, the GMV of our health supplement product sold exclusively on our platform, exceeded RMB500 million. In comparison to other products with lower gross profit and less positive user feedback, these large scale products generating higher profits on our platform were endorsed by our members with the sales potential, and it were celebrated by our users.

In our social e-commerce community, we have found that the strongest demand is with sales potential in our service managers is to earn additional income through part-time jobs. These individuals do not necessarily demand a diverse portfolio of supply categories, nor an excessive number of product types, as that there are more interest in Medicare products, renewal, profitability professional credit information training and convenient aftersales service. In order to meet such demands, we have built a highly refined and differentiated supply chain as well as professional training systems for both our service managers and our members with sales potential.

Since as early as last year, we have made a significant progress in cultivation of our food category supply chain, introducing multiple products to generate millions of RMB in sales. Meanwhile, this year we have replicated our successful experience in creation of popular high quality food products in other product categories. In September, for example, we have launched a trial food group wherein our members with sales potential served as group leaders to make daily introductions to our platform users of six different delicious food products. At the same time, we also hired senior lecturers specialized in marketing and training to better train individuals in our social e-commerce community and further educate our members with sales potential on the food product category. These types of targeted product category training has enabled members with sales potential to become assets in field, while also enabling these team members to become trusted sources of information in eyes of the users. Consequently, our members have developed the ability to reach their target users more accurately as well as maintain high-touch relations within these target users as in time. As a result, we observed repeat purchases from more than 70% of platform users in September. This continues to demonstrate the strength of both our product and professional merchandising capabilities, which have helped to significantly improve the incomes of our members with sales potential since these members began serving as group leaders. Beyond the food product category, we also launched community groups focused on the health and beauty categories in the quarter. Over the coming quarters, we will be ensured to continue providing everyone with updates on our progress in developing these product communities.

During the quarter, on the marketing front, we also continued to make meaningful progress in both the establishment of an innovative marketing channel and the utilization of diverse content formats, such as short-form video and live streaming, which have been enabling us to better present and promote those products sourced from our quality supply chain. Going forward, we plan to further leverage our supply chain’s competitive advantages in cost control and operational efficiency, establish collaborations with top and mid-tier streamers to introduce more products to our e-commerce community, and provide support and resources to more of those joint-venture brands and emerging brands with high growth potential.

In summary, we continued to bolster the competitive advantages of our differentiated supply chain, while further optimizing our membership-based ecosystem during the third quarter. Looking ahead, we plan to continue exploring those new models and marketing formats capable of creating win-win arrangements for our members, suppliers and users alike. At the same time, we will prioritize the execution of those new initiatives, which will further propel our advancement towards our long-term goal of a healthy profitability.

And with that, I’ll hand the call over to our CFO, Chen, to go through our financial results.

Chen Chen — Chief Financial Officer

Thank you, Shanglue. Hello, everyone. Before I go through our financial results, please note that all numbers stated in the following remarks are in RMB terms and our comparisons and the percentage changes are on a year-over-year basis unless otherwise noted.

In light of the increasing competition in the industry, we decided to forgo the destruction of such short-term gains and instead focus our attention on refining our operational efficiency and bolster our operational revenues. In the quarter, we collaborated with regional agriculture providers to create innovative products and further promote the revitalization of our areas and made our live streaming show different. As a result, we continued to steadily advance towards healthy profitability during the third quarter of 2020 and reduced our net loss to RMB43.6 million from RMB51.3 million.

Let’s now take a closer look at our financials. Our total revenues in the third quarter of 2020 were RMB1.1 billion. Revenues from net sales of merchandise in the third quarter of 2020 was RMB0.92 billion compared to RMB2.47 billion and accounted for 85.2% of our total revenues in the period. This decrease was due to the transfer of business to our marketplace business model, which was in line with our continuous efforts to improve our operating efficiency and the operating efficiency of our merchants. Revenues from our marketplace in the third quarter of 2020 increased to RMB130.4 million from RMB86.3 million. This increase was driven by an increase in the number of quality brands and the merchants on our platform. It was also due to the higher take rates that we have incurred by both strengthening our existing partnerships with brands and leveraging our growing community influence to attract new brands to our platform. Revenues from our membership program in the third quarter of 2020 were RMB4.9 million compared to RMB206.7 million and wholly consisting of deferred revenues from prior paying members, in line with our long-term growth plans. This decline was due to the requirement of our membership enrollment system, which allowed the users to register on our Yunji app as members enjoyed membership benefits free of charge for all year. Gross margin in the third quarter of 2020 was 29.5% compared to 17.8%. This increase was due to the higher gross margin of Medicaid products that we introduced in the quarter, our improved subsidy structure and the enhanced operating efficiency.

Now turning to our operating expenses. Fulfillment expenses in the third quarter of 2020 decreased by 55% to RMB90.5 million. This decrease was mainly due to first reduced warehousing and logistic expenses as a result of lower merchandise sales and increased logistic efficiency; second, reduced third-party payment transaction fees due to lower commission rates and third, lower personnel costs due to headcount optimization. Sales and marketing expense in the third quarter of 2020 decreased by 42.9% to RMB158.9 million, driven by the decrease in member management fees as we continue to improve the efficiency of our member management operations. Technology and content expenses in the third quarter of 2020 decreased by 53% to RMB42.3 million from RMB90.1 million. This decrease was mainly due to our realization of better contract terms with our server provider, which helped to reduce our server costs and partially due to a decrease in personnel costs as a result of headcount optimization.

General and administrative expenses in the third quarter of 2020 decreased by 18.6% to RMB51.8 million or 4.9% of total revenues from RMB63.7 million. This decrease was mainly due to our continuous efforts in headcount optimization.

Overall, total operating expenses in the third quarter of 2020 decreased by 46% to RMB343.6 million from RMB636.4 million. This decrease was driven by our continuous improvements to logistics efficiency, our ability to secure better partnership terms and increased member management efficiency, which resulted from our continued improvement of service management relationships. Loss from operations in the third quarter of 2020 decreased to RMB24.4 million from RMB118 million. Net loss in the third quarter of 2020 decreased to RMB43.6 million from RMB51.3 million. Adjusted net loss in the third quarter of 2020 was RMB36.4 million compared to RMB24.9 million. Basic and diluted net loss per share attributable to ordinary shareholders in the third quarter of 2020 was RMB0.02 compared with RMB0.02 in the same period of 2019.

Now let’s also take a look at our cash and liquidity position. During the quarter, our ability to maintain a healthy level of working capital despite of macro headwinds and uncertainty in the period enabled us to support our operational and liquidity demands. As of September 30, 2020, we had a total of RMB1.2 billion in cash and cash equivalents, restricted cash and short-term investments on our balance sheet. Going forward, we will continue to drive the development of both our marketplace and the merchandise sales. We also plan to leverage the strengths of our value proposition for user, service providers and suppliers to launch new initiatives and developers, more cross-synergies through the growing of partnerships. Looking ahead, we remain confident that these growth strategies will enable us to bolster our core financials at a steady pace, augment our overall profitability and continue laying the foundation for our healthy growth and future profitability over long-term. This concludes our prepared remarks for today.

Operator, we are now ready to take questions.

Questions and Answers:

Operator

[Operator Instructions]

There are no questions at this time. I would like to turn the call back to management for closing.

Kaye Liu — Investor Relations Director

Thank you for joining us today. Please do not hesitate to contact us if you have any further questions, and we’re looking forward to talking with you next quarter.

Operator

[Operator Closing Remarks]