ContextLogic Holdings Inc. (LOGC) Earnings Call Transcript & Summary

All right. So I think we're going to go ahead and get started. I'm Stephen Ju from the Credit Suisse Internet Equity Research team. Joining me to my left is Joe Yan, who is the CEO of Wish. And to his left is Vivian Liu, who is the CFO and I guess the COO as well. So they got you working double time. Welcome, and thanks for joining us.

By the way, thank you for skipping the match and to be with us right now.

I guess, we'll get score updates as the sessions rolls on. I guess, for you, Joe, for those in the audience who might not be as familiar with Wish, could you provide a brief introduction of the company and the business model? And can you share how Wish's platform differentiates its services, its inventory and customer experience from its competitors? And I think the competitors has widened over the years, right?

First of all, thanks, Stephen, for having us on the stage. So founded back in 2010, so Wish, we are a global e-commerce marketplace. So we're pretty much focused on the cross-border, to build the network, connecting the merchants from global. So nowadays, we have over 250,000 merchants from across the world. And also, we have the consumer customers from over 60 countries. So what make Wish unique? So I think, first of all, I think it's about our vision. So from the day 1, we have this company -- found this company, we're focusing on kind of unlocking the e-commerce for the underserved. But what does it mean to us? So we believe there is a huge segment of the customers, including both consumer and the merchants. Nowadays, actually, they are underserved by the current e-commerce infrastructure, let's say, not necessary for all the consumers actually did buy the premium brands. So for some of the category, for some of the purchase, they purchase on certain categories. So they prefer more kind of variable cost selection rather than the branded products. And also on the merchant side, it's a similar situation. So it's not all the merchants is coming from the enterprise segment, selling the premium brands. We also have a lot of merchants coming from the factory or manufacturer very well. So actually, we provide them the one-stop solution, one-stop platform to help them streamline the process to selling online. So I think this is our vision. And also, I think I want to mention about our mobile-first approach as well. So 90% of the customer activity what we have here actually now happen on our mobile app. So I think this is something from the day 1. So we focus a lot on the mobile shopping experience. And compared to the other e-commerce players, we're pretty much discovering the expiration focus. So for the traditional e-commerce players, they are more search-driven. But for most of our customers coming to Wish, they are with the loose intent. So we provide them the discovery base, the personalization experience, help them to do a lot of personalized browsing. So this is something also associated to actually the merchandise, actually the category that we are focused on. So we help to kind of really provide the customer experience to our global-based users.

I think it was shopping as entertainment.

We were trying to kind of bring the entertainment, the fun experience to our customers. But if we look at the global e-commerce marketplace, you talk about the competitor competition, it's really hard to find one or 2 players kind of dominate the market across the world. So that's something actually we also kind of find us actually the opportunity to kind of grow in many areas, many spaces across the world. So this is something we believe there is a big room for us to play, for sure.

Our tagline is Shopping Made Fun, Discovery Made Easy or Bargains Made Fun, Discovery Made Easy.

That is indeed a sharper message. Now I haven't seen this before for a marketplace platform to do this, but I think you guys recently moved to an invite-only model to onboard new merchants. So what were some of the driving factors behind the shift? I can guess of why you did this, but it would be great to hear it from you. And I guess, has that impacted your ability to onboard new merchants or different types of inventory that you might want to be in?

Vivian is running the merchant operation.

Yes, so that's part of my COO's field. So as Joe mentioned, we have 270,000 merchants onboard. That's actually the merchants actively serving. So the total population merchants that we have are way more than 270,000, just to clarify. So this tells us that we have a very sizable merchant community on Wish platform already. But really to come back to the decision moving into invite-only, it is our approach to build a platform that both sellers and buyers can trust and this is about building a very healthy ecosystem. And we did that at the beginning of the year and we'll continue the invite-only mode to make sure that all the merchants are brought onboard and will be very actively vetted to go through the vetting process. So it doesn't really impact our ability of acquiring new merchants because our team continue to prospect, acquire, onboard and maintain new merchants on a daily basis. And the only difference now versus before is that they go through a much, I would say, stricter vetting process when they join Wish. And as I mentioned, the goal is to build the -- a very healthy ecosystem for the trust with the buyer community and the merchant community alike across the world. And that's not the only thing we did actually. The invite-only is the step 1 and then we also implemented a program called Wish Standards. And that program classifies all the merchants on the Wish platform into bronze, silver, gold and platinum tiers with increasing benefits in terms of -- in the form of preferential payment terms, commission rates and a better exposure within the app for the premium tiers merchant. And those 2 programs, I would say, over the past year, has done wonder for us. And if you look at the statistics, our refund rate has declined 38% -- 34% since the beginning of the year. Order cancellation rate declined to 68% since the beginning of the year. And the customer NPS score improved since last year. I think it's compared to where we started more than doubled, the score. And also, when you look at the GMV contribution, the percentage coming from the premier merchant, which are gold and the platinum, those 2 tiers, the GMV contribution has been steadily increasing as well. So this tells us that we are really moving in the right direction and improving the quality and the product listing and the quality of products itself and the quality of merchants themselves because we realized the good quality, product quality, listing quality, merchant quality is at the heart of the great customer experiences. So at the end of the day, we want to incentivize and empower the merchants who provide the best customer services on the platform.

What's in the vetting process for some of these new merchants? Like how do you -- what are you looking for? Like what metrics are you looking at particular categories, product category, quality? And like what is it exactly that you're looking for? Just sort of the additional sort of requirements or I guess the more stringent requirements...

For the merchants onboarding, they definitely have the KYC KYB process where they need to provide an identity proof and also some of the supporting documents. So this is something I think for the KYC and KYB process. And once that you will onboard a merchant, alongside actually the growth journey with us. So definitely, we'll look at some of the key metrics. For example, the order defect rate, including a lot of kind of other things like the on-time delivery rate and also the rating of the product listings, et cetera. This is something actually we take into the consideration to build the WSS, we call it the Seller Standard program, to really kind of classify our merchants.

So that's I guess a multi-factor feedback model coming in from the buyers as well in terms of the sellers?

So the refund rate, the review rate -- the reviews in the second of the review grades and also the category they play in is also important. And we have our core categories and the top 5 categories on us -- on Wish platform are fashion, including both men and the women's fashion; apparel and shoes and accessories; and then electronics, home and garden; beauty and health hobbies. So those are major 5 categories. Obviously, if you are -- they are pretty broad categories. So if you are a merchant selling one of those 5 key categories, I mean, you're going to be -- you'd do well on the Wish platform, but end of the day, it's the listing quality and the product quality that also play into the score or [ terminating ] of the merchants.

Are you actually firing sellers as well from the platform?

So part of the Wish Standards Program is designed to be force compliance with merchants -- on the merchants. So if they are not in compliant, whether it's imaging, quality or listing or they have lot of complaints, we could ban them from the platform, and that's part of the -- as the purpose of the Wish Standards Program. And in fact, honestly speaking, we are a lot more efficient compared to before in terms of not only incentivize the good quality merchants, but also banning the poor quality merchants from the platform. Again, end of the day, it should build this ecosystem that both buyers and sellers can trust and can build a sustainable growth on the platform for both parties.

I think you also changed the way you charge your merchants as well. So I think advertising, I think historically, I mean, there's not disclosure, there's no GMV. I will once again complain about that, but yes. So I think historically, at some points of time, I think the core take rate and advertising were about the equal size. So we kind of figure out what the GMV might have been. But I guess, you're also simplifying the way you charge your sellers. So can we talk about that? And sort of, I guess, Wish's ongoing efforts to drive, I guess, price simplicity as well? I think you were making money in multiple different ways.

I can get started a little bit and Vivian can elaborate a little bit more about the details. So now actually we have 3 main revenue streams. One is actually the take rate, that is actually from the -- each of the transaction that we have on our platform. So another is something we mentioned about the online marketing service that we provide called ProductBoost. And lastly, it's about the logistics. So actually, we also kind of provide the logistics service to our customers given the nature of our cross-border business. So this is something also very important. But you are right. So I think this year, one of the key initiatives is actually we try to kind of change a little bit about the take rate. So the context and the thinking behind is more like we want to be more in line with the industry practice. We take a lot of reference from the industry practice and from our kind of the peer group. And also, we also take the nuance, compare that into account as well, because actually the take rate also depends on what kind of a product you're selling. So this is something definitely we did a lot of research and it's something we rolled out recently and it also helped a lot to kind of incentivize our merchant on the platform to give them actually the more chance to kind of list more attractive products on the platform.

So we actually -- I wouldn't say simplified on both sides. We did change our commission structure and simplified our product list -- product pricing with buyers. So there's 2 things we did this year. On the commission side, which is very specific to sellers, we rolled out the new commission structure, we call it Progressive Commission Structure, which means if you sell different categories and sell at a different pricing point, the commission structure progressively get more favorable if you go up the value chain a little bit more. So if you are high-priced items, usually the commission will be, generally speaking, lower for the same category for same merchant. And also, if you are a premier merchant status based on the Wish Standards Program, you get a discount on the merchant -- on the commission rate as well. And the different product categories have different commission rates as well. Like if you're selling apparel versus selling electronics, the margin will be very different from a merchant standpoint and we charge a different take rate as well. So this is all very much compliant or consistent with the best industry practice versus in the past. Our take rate was kind of a universal agnostic way you sell, the status, everything. So this is a change more to be more competitive and incentivizing the right behaviors on the platform and the better merchant status and higher price items. So this is the design on the merchant side. This year, we also implemented our pricing change on the user side. So -- and we simplified. I'm not going into the details, but we simplified the product -- pricing strategy across the globe. And due to that simplification -- we implemented that change gradually throughout Q1, Q2 and Q3 was the first quarter where the new pricing strategies are fully implemented everywhere. And we -- it was not a very easy decision, to be honest, because there will be near-term top-line revenue and EBITDA impact due to the pricing change on the user side. But we decided that it will -- it's the right thing to do. It will drive better user engagement and more transparency with our merchants in terms of how we price products on the platform. In the longer term, it will drive retention and organic traffic for us. So it's kind of reflected in the financials and we actually called that out in the earnings call as well. But again, this is a near-term pain long-term gain. And it's the right thing to do. And we start to see some of the benefits of this implementation of both changes already.

So by -- when we're talking about pricing changes to the user side, so we're talking about the elimination of dynamic, what was dynamic?

Yes, for the most part.

But for the merchant commission structure thing, the one thing to add is, it's also kind of tied to the category management capability we are enhancing now. So pretty -- previously, I think Wish has pretty much actually relied on actually the supply inorganically from the merchants. But now, actually since this year, we have been kind of spending a lot of efforts on kind of building our category management capability to kind of guide the merchants to kind of give us more selections. But this commission structure definitely help a lot.

So that's a lot of changes. So just to make sure I understand this correctly, so that the core sort of commission structure when you're talking about aligning that with others, you're looking at other markets or the marketplaces and saying, okay, consumer electronics which might have a 9% gross margin, it's inappropriate for them to charge what was the very high take rate or another category like apparel. So there's been sort of a top-to-bottom category-by-category adjustment. And what about for ProductBoost? Is that still alive? I think that would have been -- I mean, like nobody was forcing the sellers to use it. I mean, if they wanted to promote their products, they would. So there's probably nothing can covering the growth of ProductBoost?

ProductBoost is still very much alive. And we're hoping that it will -- the performance will improve actually given that the volume and the traffic is so much higher Q3, Q4. And -- but we are providing other opportunities for the merchants to showcase their products. And with or without necessarily using the ProductBoost product -- product offering from us. So this year is the -- 2022 holiday season is the first time we did like a [ site-wide ] merchandising campaign. And Wish used to be very much dependent on the performance marketing like the Facebook or Google customer acquisition and the merchandising was not really -- wasn't really part of the key core strengths of Wish in the past. But this year, we started doing the holiday merchandising, which the momentum is very encouraging. And we're kind of still in Q4, early to tell, but momentum is very strong. And most of the promotions are funded by merchants. So they came forward with the dollars, products, deals, promotions and they know their products much better than us and they design programs for themselves and drive the volume, drive the sales. And I think that's another platform where -- or tool that we're providing to merchants besides the ProductBoost. And they can showcase their best products and kind of grow with Wish.

So you've incentivized the sellers to behave better. And the better sellers and the higher quality sellers are doing more of the selling of their platform. So the optimist in me wants to believe that, that also results in an improved customer experience which you're calling out as well. So I guess, that seems like a great recipe to start the recovery path?

So that's very important. I think you mentioned a very key point here. So I think with every change which we've made in the past 12 or 18 months, I think we're focusing a lot on improving the customer experience.

So overall, it sounds like some of the older stuff like dynamic pricing, so if the monetization comes down. But the trade-off here is if it's a better customer experience and you're through putting more volume, then that will be the make-up?

We do believe definitely it will be beneficial from a long-term point of view.

We haven't talked about logistics very much. I think the previous way of thinking, under the prior management teams, I don't know if maybe several management teams ago, but it might have been something that could have been a profit center for the company. But where is your head right now in terms of the logistics product? Is that a priority as of yet or is there going to be further product evolution from here on out?

I think as the business model, I think logistics definitely is something very key to our success. But nowadays, we rather define the logistics as the infra to our core business. So that's what I said. So I think for the cross-border, I think one of the biggest challenges is the logistics delivery. So in the past 3 or 5 years, actually we have been building kind of very strong global logistics network that actually allow -- our merchants can easily use our platform to ship the product from Asia to across the world from Europe to U.S., et cetera. So this has been definitely very clear for us. We'll continue investing in this. But position logistics service as revenue stream or a profit center, I think it quite depends on the stage of the company, also the scale of the business. So this is the thing I think nowadays I think as we always talk about, discussing just now, I think we are more focusing on the customer experience. So this is the thing actually we're trying to kind of really utilize our logistics network can kind of better improve the customer experience. So the short answer here is I think it definitely helps us to generate some of the profit, but I think this is not the first priority. So we still kind of want to leverage the logistic network we built to support the core business growth.

I guess, historically, one of the pain points of the company is, okay, like there's a lot of like discounted products on Wish, but the trade-off is that you have to wait 2 weeks or a long time for the stuff to arrive. So I think with the logistics solution, I think one of the prior initiatives has been to, okay, why don't we help the sellers forward stage some of the industry near, I don't know, Long Beach or other different ports around the world. So have you been looking to close that shipping gap as a proponent to the improving customer experience?

Absolutely. So this year, our logistics already improved drastically. And drastically, I guess, maybe it depends on how you define drastically. I would say very materially. And when you look at the NPS score of our customer base on customer survey, in the past, one of the key pain point they have was very slow, kind of the delivery time being too long. And this year, when we look at the improvement of the NPS score, the major driver of the improvement itself is to improve the logistic delivery time. So people -- when you make that improvement, customers feel it and immediately reflected in their more favorable view of Wish. So on average, we decreased the delivery time about 5 days in the top markets and that's not a small accomplishment within just a year. And then maybe quickly touch on the profitability, I will come back to your question. So we do make money with logistics, we don't lose money. But end of the day, we are not UPS and we're not USPS. And so we don't monetize the logistics as the core business and end of the day our core business is marketplace. But logistics is a very key enabler of the core marketplace business and it's a very -- it's a differentiating factor for us when we talk to the merchants, because as Joe mentioned, a lot of merchants wanted to -- do not want to be bothered with logistics, anything else. They just want to focus on selling. And they're talking to us, one-stop shop, very attractive to them. And our logistics services adoption rate is very high. Our A+ logistics services adoption rate is more than 80% with our merchants. So that means that this is a very key differentiating factor of Wish to our merchants. Coming back to what you're asking about forward deployment, I think we have done a lot of -- improved the efficiency in the logistics, the chain, different steps and we gained better efficiency and that's how the 5 days we accomplished improvement in the past year. In order to continue improving the logistics, the delivery time, forward deployment will be part of our key recipe for next year. We don't necessarily like build a bunch of warehouses and own them, operate them ourselves because it's a very capital-intensive model. But we are definitely going to work closely with our -- a lot of merchants and the partners. And some of the merchants already deployed their inventory in the U.S. and [ destination ] countries already with or without us. They already do that. What we need to do is to partner with them. And so a lot of orders can be fulfilled locally and hence a much shorter deliberate time. And that's definitely on the roadmap as the 2023 initiative to further reduce kind of logistics delivery time.

Now back to you, Joe, I think in terms of the progress you've made so far since you stepped into the role. So hasn't been that long, but which areas do you believe that Wish has made the greatest amount of progress in? And where do you think there's more work to do?

Yes, definitely. I mean, first of all, I feel very thankful when I stepped in September. I give actually a lot of credit to the management team we have. So as Vivian mentioned, I think we already saw a lot of positive signs or the green shoot past few months, so a lot of progress there. So the NPS for both merchant and consumer get significant improvements. And also, the -- I think 2 of the key metrics we look at now is actually [ MMU ] and the order wallet. So in our earnings call, I also kind of called out, I think this is the first sequential kind of quarter-over-quarter growth since actually last year.

Since Q1 2021. So it's about 2 years.

Yes, that's been a while. So that's something actually adopting. I think we do see a lot of kind of improvement there. But in terms of the future, definitely, we still think there's a lot of areas we can do better. So one thing actually -- currently, the company is focusing a lot is actually the product innovation. So this is the thing actually we have been thinking through what would be the product evolution means to us to really kind of drive the inspiration base, the shopping experience. So back to the early days, this is something really kind of we provide a very different shopping experience to our customers. And nowadays, how we're going to kind of evolve our kind of product. So this is the thing actually we really think about. So there are a lot of the kind of metrics to measure that. And we definitely believe as long as we have a better kind of consumer product experience and then we can kind of bring more organic visits for sure.

Interesting. So you spent a lot of time -- I'm sorry about the analogy, but cleaning up the house and fixing the house. So the time has come to invite customers back into the house.

So historically, actually we already have 1 billion downloads. So this is something actually as a 12 years' old company. So I will call out, this is one of the very important assets of Wish. So as long as actually we have the better customer consumer products, we believe actually more and more our kind of customer will come back. So this is the thing actually the team focused a lot to see how actually we can drive this organic visits.

I think we only have about a minute or so left. So I can't let you leave without answering the macro question, especially I think Wish has traditionally been known for the discounted products. So it seems like kind of the conducive environment for you to be picking up some market share as different consumers in different parts of the world maybe start to trade down. So are there any sort of macro headwinds or impact that you're starting to feel at Wish?

That's a great question. There is a lot going on at Wish. So sometimes it's really hard to tease it out which part of the tailwind generate this and which part of the headwind generate the other kind of different impact on our performance. I think generally speaking, you are correct. When the economy is tough, people generally have lower disposable income, they tend to move down the value chain and looking for type of valuing product of -- stronger value proposition, cheaper products and all that. I do believe somewhere in the system we got the tailwind. And at the same time, I think we also probably have some headwinds due to the type of products that we sell on Wish to be just perfectly honest, because we don't sell staple food. When people have a limited and disposal income, they first prioritize for essential like life essentials. And what we sell is not what people necessarily need on a daily basis, it's what they want. And so again, we have a vast selection of products in the 5 categories I mentioned. And we wanted to be the online destination for home and life. And when you think about home life, it's really what you wear, what you do, what you use to decorate your home, garden, hobby, kids' toys and all that -- everything that can go on basically within the household. But end of the day, we don't sell food. And so anyhow, so my point is that when we -- our platform is focused on what people want, not what people need on a daily basis. And arguably, there could be a little bit headwind in this same micro environment. But I think what we need to do is really, Joe mentioned, focus on our strategy, really focus on what's right for the long-term business and really focus on building sustainable growth. And that's what matters at the end of the day. And we focus on the core customers and we had a strategy offside, leadership team came together really brainstorm who are core customers, what their care abouts are and that's going to be our focus in 2023 and onwards.

And I think with that, we are out of time. So Joe, Vivian, thank you so much for joining us, and best of luck in the coming year.

Thank you. Thanks, everyone.

Thanks, everyone.