YUNJI INC (NASDAQ: YJ) Q4 2020 earnings call dated Mar. 22, 2021
Corporate Participants:
Kaye Liu — Investor Relations Director
Shanglue Xiao — Chairman of the Board of Directors and Chief Executive Officer
Chengqi Zhang — Vice President of Finance
Analysts:
Terrance — First Trust Group — Analyst
Presentation:
Operator
Good morning and good evening, ladies and gentlemen. Thank you, and welcome to Yunji’s Fourth Quarter 2020 Earnings Conference Call. With us today are Mr. Shanglue Xiao, Chairman and Chief Executive 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 first speaker today, Ms. Kaye Liu, IRD of Yunji. Please go ahead, ma’am.
Kaye Liu — Investor Relations Director
Hello, everyone. Welcome to our fourth quarter 2020 earnings call. Before we start, please note that this call will contain forward-looking statements within the meaning of 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, expects, anticipate, continue or other similar expressions. For a detailed discussion of these risks and uncertainties, please refer to our related documents filed with U.S. SEC.
Any forward-looking statements that we make on this call are based on assumptions as of today and expressly qualifies in the entirety by cautionary statements, risk factors and details of the company filing with SEC. Yunji does not undertake any obligation to update these statement, except as required under applicable law.
With that, I will now turn over 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 fourth quarter 2020 earnings call.
[Foreign Speech]
In the fourth quarter, we generated a total GMV of RMB11.7 billion and total revenues of RMB1.33 billion due to our ongoing development of differentiated supply chain and upgraded merchandising mix. As a result of augmented user stickiness and increased absentees [Phonetic] of platform service managers, the number of transacting members on our platform increased materially to 13.3 million for 12 months at the end of December 31st, 2020.
[Foreign Speech]
2020 was a year of significant changes in terms of both the internal and external environment. At the end of the year as usual, we will review our strategy and reflect on our achievements of the year.
[Foreign Speech]
In 2020, under an increasingly competitive e-commerce environment, we identified a suitable path for Yunji to develop differentiated supply chain, which can be leveraged to make more targeted, customized, and specialized product offerings.
As technology evolved, many industries embraced this intermediation and our business model is not about arbitrating the product price differential among other e-commerce platforms. Instead, we established our competitive strength through researching the optimum merchandising mix, engaging service managers to act as shopping curators and enhancing our user’s shopping experiences.
And our differentiated merchandise mix of private labels, joint venture brands and emerging brands enjoys a longer product lifecycle, can be constantly improved and may gradually develop into products and brands capable for generating tens of millions or billions of sales. Aligned with the improvement of our product offerings, our community also became more active as our members and users allows us to more materials about products to share and discuss in [Indecipherable].
[Foreign Speech]
Over the course of 2020, our efforts in implementing supply chain differentiation and private label development strategy have achieved meaningful results. For example, one of our private label, the weight loss product joined the Yunji mailing door service product category, within half a year since its launch as it has generate over RMB6 million of sales.
We will continue to improve these products according to user feedback and market demand to further improve our user satisfaction. In February 2021, we also launched our first approved food safety focused private label called Li Ba Tian. Li Ba Tian launched its first product authentic grilled sausage, jointly with a renowned food research institute in China called 5K [Phonetic] Sausage Research Institution.
And on both sides of the 2020 Chinese New Year holiday season, we started selling two new batches of authentic grilled sausage respectively. All of them sold out promptly upon market introduction. Besides food, we are also developing and promoting additional merchandising categories including hoteling [Phonetic], personal care and health supplements.
[Foreign Speech]
Most of our service managers are either soon to be mothers or mothers of the children under the age of 12. We believe in a self-ability and creativity of these women when they work on our platform as service managers. By continuously improving our platform features, we provide our service managers with more competitive products to promote. In 2020, our service managers became substantially more active in sharing and promoting our products. In turn, they earn a better income and improve their own quality of life.
We mainly focus on three growth initiatives for our community marketing. First, to be providing our service managers with products that are easier to spread and share online. These types of products can easily motivate service managers to produce regionally unique content for them to attract more users.
Second, we establish communities for various product verticals and apply the targeted marketing and sales strategy. For example, with Moony, our private label product in the beauty community and share different ways to cook Li Ba Tian’s grilled sausage in food community.
In the second half year of 2020 in the popular health supplement community, we provided members with tips on maintaining healthy diet and improving their lives habit. In the meantime, we also introduced weight loss products and health supplement products to help our members in the community became healthier and feel better about themselves, to help sharing from our service managers to send out a [Indecipherable] about numerous news feeds, we provided service managers with professional training and training include communication skills, industry equities, the product origins, basics, etc.
Third, we are cultivating [Phonetic] more content distribution channels, including short-form videos and live streaming sessions on one and partnered platforms. Therefore, service managers that are good at live training can generate more attention and income through live training about our products, while service managers who are good at sharing can earn commissions from promoting purchase transactions through sharing related in live streaming events.
[Foreign Speech]
Through partnerships and collaborations, we actively channelled user traffic from third-party platforms to our own platform for example, our private label beauty brand P&X developed a joint label product in cosmetic through our collaboration with Moschino, an established Italian luxury brand.
[Foreign Speech]
We also actively explored live streaming channels for intensely partner with online celebrities called [Indecipherable] for two live streaming shows on a leading short-form video and live streaming platform in China.
Both shows generated a total sales of RMB120 million. During the 11/11 shopping festival, we also partnered with Douyin, top selling [Indecipherable] to promote our products and achieved RMB50.19 sales through a single live streaming show.
[Foreign Speech]
Most of our end users are women and mothers who take care of their whole family, we have always paid great attention to demands of these type of customer group and [Indecipherable] our platform capabilities to service thousands of mothers. Based on their demand we also developed high quality products that the whole family could effectively use and enjoy. On our platform, these mothers do not just to buy a course to effective product, but also a carrying service, a product that the whole family can enjoy at ease.
[Foreign Speech]
So we are heading — in the coming year, we will continue to be live and alongside the right members and advance [Indecipherable].
With that we — I will now turn the call to our Vice President of Finance Mr. Chengqi Zhang who will go through the details of our financial performance in the fourth quarter.
Chengqi Zhang — Vice President of Finance
Thank you, Shanglue. Hello, everyone. Before I go through our financial results, please note that all numbers stated in the following remarks are in renminbi terms and all comparisons are on a year-over-year basis unless otherwise noted.
During the fourth quarter, we continue to focus on improving our margins by launched more private label brand products and to utilize our unique membership based community to include sale across different social channels. As a result, we continued to steadily improve our platform’s operating efficiency during this quarter with total operating expense decreased by 44% and the loss from operation decreased by 54%.
Now, let’s take a closer look at our financials. Total revenue in the fourth quarter of 2020 were RMB1.3 billion compared to RMB2.4 billion in the same period of 2019. Our GMV for the fourth quarter of 2020 was RMB11.7 billion compared to RMB11 billion in the same period of 2019. Revenue from net sales of merchandise in the fourth quarter of 2020 were RMB1.2 billion compared to RMB2.1 billion in the same period of 2019.
Revenue from our marketplace business in the fourth quarter of 2020 were RMB152 million compared to RMB169 million in the same period of 2019. The trend in our total revenue on the GMV were in line with our ongoing efforts to improve both our internal operating efficiency and operating efficiency of our merchants as we continue to transfer business activities to our marketplace business model, while expanding our user coverage through innovate partnership with other platforms.
During the fourth quarter, the year-over-year decrease in our total revenue was mainly attributable to lower commission rate as a result of our efforts to protect platform membership’s value through providing subsidies to products from certain large brands in response to increased competition during the e-commerce shopping festival period.
Besides, as we implemented our own coverage expansion strategy, our commission rates during the quarter was also affected by our increased promotion for the new partnership platform such as live streams events on our Douyin stream platform. Revenue from our membership program in the fourth quarter of 2020 were RMB40,000 compared to RMB146 million in the same period of 2019.
Revenue from our membership program consisted entirely of deferred revenue from prior paying members as a result of our decision to refine our membership enrollment system. Gross margin in the fourth quarter of 2020 expanded to 26% compared to 24% in the same period of 2019. This increase was due to our decision to introduce more private label products with higher gross margin on our platform during the quarter as well as our improved product mix and enhanced operating efficiency.
Now turning to our operating expenses. Overall, total operating expenses the fourth quarter of 2020 decreased by 44% to RMB368 million from RMB652 million in the same period of 2019. Fulfillment expenses in the fourth quarter of 2020 decreased by 52% to RMB92 million. This decrease was mainly due to decreased warehousing and logistics expenses resulting from lower merchandise sales and improved logistic efficiency.
Decrease in third-party payment transaction fee due to the lower charter rates that we secured. Lower personnel cost due to the head count reduction as well as decrease in the share-based compensation expense, which include our previously recognized reversal of RMB6 million in the share-based compensation expense.
Sales and the marketing expense in the fourth quarter of 2020 decreased by 45% to RMB167 million. This decrease was primarily driven by our reduction in member management fee as a result of our improved member management efficiency, partially offset by higher business promoting expenses as a result of our increased business development activities in the period to attract more popular brands and the merchants to our marketplace business.
Technology and content expense in the fourth quarter of 2020 decreased by 41% to RMB44 million, mainly due to reduced server costs as we secured better contract term with our server provider as well as decreased the personnel costs as we refine our staffing structure.
General and administrative expenses in the fourth quarter of 2020 decreased by 26% to RMB64 million, mainly due to the ongoing refinement of our staffing structure. As a result, we reduced our loss from operating in the fourth quarter of 2020 by 54% to RMB22 million from RMB47 million in the same period of 2019.
Net loss in the fourth quarter of 2020 was RMB77 million compared to RMB5 million in the same period of 2019. Our adjusted net loss in the fourth quarter 2020 was RMB53 million compared to adjusted net income of RMB25 million in the same period of 2019. The year-over-year decrease was primarily attributed to our income tax expense of RMB44 million in the fourth quarter of 2020 compared to our income tax benefit of RMB5 million in the same period of 2019.
It was also due to our net financial loss of RMB7 million in the fourth quarter of 2020 compared to the net financial income of RMB39 million in the same period of 2019. Basic and diluted net loss per share attributable to ordinary shareholders in the fourth quarter of 2020 were both RMB0.04.
Now, turning to our cash and liquidity positions. In order to satisfy the ongoing demand of our operations, we’ll continue to maintain a healthy level of working capital, As of December 31st, 2020 we had a total of RMB1.3 billion in cash and cash equivalents, restricted cash and short-term investments.
Looking ahead, we remain focused on growing our marketplace and the merchandise sales model, expanding our differentiated supply chain, for growing more partnerships and enhance our social community. Such efforts will help to fortify our financial performance, augment our total profitability and infuse a substantial growth of our operations over the long term.
This concludes our prepared remarks for today. Operator, we are now ready to take questions.
Questions and Answers:
Operator
Certainly. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] We have the first question from the line of Terrance [Phonetic] from First Trust Group. Please go ahead.
Terrance — First Trust Group — Analyst
Thank you. [Foreign Speech]
Thank you for taking my call. This is Terrance from First Trust Group. I have a few questions. My first question is, as we can see the increase in the proportion of Yunji’s marketplace business, so what’s the separate percentage of your mainstream brands, emerging brands and private labels and how would you optimize the marketing metrics?
My second question is based on the transformation towards the marketplace business, what will be the Company’s target for the future. My last question is, we noticed the transaction members continue to grow, so would you please share some color on your monetization plan? Thank you.
Shanglue Xiao — Chairman of the Board of Directors and Chief Executive Officer
[Foreign Speech]
So, thank you for your questions. And today, most of our products are coming from the mainstream brands and only 10% are our private labels. And as for the distribution [Phonetic], we hope that as our business grows and we hope that we could increase the percentage of the products of the mainstream brands to 60%. And because we know that, it is quite expensive for those mainstream brands to attract traffic online.
So later, we hope that those mainstream brands are going to provide exclusively products and they have our co-operation plans and for those exclusive brands from those mainstream brands and the price is going to be quite cost effective for our platform and also we would like to bring more interest to our members of our platform.
So altogether, we are working on the private labels and the mainstream products and we hope that by our efforts in the [Indecipherable] we could increase the percentage of the mainstream brand products to 60%. And among the 60%, 20% will be the exclusive products. And for the private label products, they’re going still accounted for 20% of our products.
[Foreign Speech]
And as for your second question. We know that currently in China, we have a 150 million mothers and we hope that we could help them — our products help them to improve their quality and hope that we could have a one-third of those mothers as our members and we know that currently for our platform we hope that we could not only focus on those mainstream brands, also we could promote those emerging brands and together with the manufacturing, altogether we could serve more families and bring better lives for those families.
[Foreign Speech]
So, for those customers, we hope that we could bring to them more cost effective products and a better service experience and we hope that they could just feel comfort in our platform when they are buying our products compared to other platforms.
[Foreign Speech]
And also, we find that a large group of our customers and our members actually they have a lot of wishes. For example, they would like to change their destiny and increase their income and generate more social value for themselves and also share the responsibility together with their spouse. So for such group of customers, we hope that we could provide them the professional service and also provide them the platform so as they could be a professional or expert in their differentiated area. And for example, if for member or sales manager, they could have a better knowledge in the cosmetics or beauty product, then 90% of the people around this person, is going to — he or she going to be a professional.
And so, the same is for the professionals in the health care products. So we’re going to — we could, in this way, help them to increase their income and give them the internet-based employment. And also in the past several years, and we thought we have provided to large number of FPU or products for those group of sales managers and then we find out they are — they were busy promoting the product, but they still cannot get much income.
So in the last two or three years, we’ve find out only by providing the professional knowledge for this group from the sales managers can they become the professionals in their differentiating area. And so we are going to provide them more [Indecipherable] products and also provide them the professional training so they could have become the professional service manager in their differentiated area. So they’re going to have more interaction with their fans and dealers and increase their sales and income.
[Foreign Speech]
Thank you for your questions.
Operator
Thank you. [Operator Instructions] As there are no further questions, I would like to hand the call back to our presenters for any closing remarks. Thank you.
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 look forward to talking to you next quarter. Thanks, Pat.
Operator
[Operator Closing Remarks]