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

Great. Good afternoon, everyone, and welcome to Needham's 18th Annual Technology and Media Conference. My name is Anna Andreeva. I'm a senior analyst here at Needham, covering the consumer e-commerce space. And next up, we have the management team from WISH. Great to have you guys.

Great to be here, thank you.

I think the guys are going to go through the presentation first, and then we'll open up for questions.

Okay. Thanks, Anna. Thanks for having us. Thanks, everyone, for joining us today, and I'm looking forward to talking to all of you about WISH's story. So for those of you who might not be familiar with WISH, let me give you an overview of who we are and what we do. So WISH was founded in 2010. It's one of the largest and the fastest growing global e-commerce platforms, operating in over 60 countries and working with over 170,000 merchants globally. So our vision is to unlock e-commerce for the underserved by giving consumers access to a wide selection of affordable goods and providing merchants with access to millions of consumers globally. So our most popular categories include home and life, hobbies, electronics, beauty and health and fashion. Next slide, please. And now let's talk about where our customers are based and where most of our orders are coming from. So around 86% of our buyers are concentrated in 2 geographic regions, Europe and North America. Those 2 regions alone account for a majority of our GMV. And our customers are millennial and Gen X and they tend to have a higher degree of deal seeking behavior and the affinity of value of commerce stores. So we believe we have a unique competitive advantages here. So we are mobile first. Over 90% of our user activity and the purchases occur on our mobile app, and we are a discovery-based platform. Over 70% of the sales on our platform do not involve search query and instead come from personalized browsing. So from the industry report, right, so we can see that -- so 63% of the smartphone users are more likely to purchase from our company's mobile sites or apps offer them relevant product recommendations and 49% of the consumers have purchased a product they did not intend to buy after receiving a personalized product recommendation. So that is why everything that come to our consumers, right, are personalized. The more our users engage with us, the more we get to know them and no 2 users interface are the same. And our platform is entertaining and blurring the lines between e-commerce and the social. We want to bring in entertaining and fun shopping experience to our users. WISH users enjoy interactive games, our lock-in bonuses, our rewards and the infinite feed of entertaining products. To sum it all up, WISH is about creating a fun, easy and personalized discovery shopping experience that provides the best value for our user looking for the light in life. So all right. Let's now shift our gears to talk about our foundations for growth, which are really built around 3 fundamental pillars here. So first one is improving the customer experience. And secondly, deepening our merchant relationships. And last but not least, achieving our operational excellence. Over the past year, so we have been going through a major period of transformation. While we have been doing lots of things, right, we know there are areas where we need to improve. We have been working diligently to improve the front end for our users and the back end for our merchants. And I'm energized to share some of the progress we are making as we continue on our journey to create a global platform that's incredibly interesting and compelling to consumers with bargains made fun and the discovery made easy. As part of turnaround efforts, we have brought in fresh leadership to help deliver on our business plan. So as you can see, right, so they are -- here are the key executives on our leadership team: Vivian Liu, our Chief Financial Officer and the Chief Operating Officer, who you will hear from later in this presentation; Mauricio, our Chief Product Officer; Jerry, our Chief Technology Officer and myself. We each bring with us a rich background in tech, e-commerce, payments or social media. And this is just a small snapshot of some of the world-class team members that we have working at WISH. Each one of us is laser-focused around our 3 pillars objectives, which I shared earlier and bringing our business back on the path of growth. The transformation underway here at WISH is all about preparing ourselves for the next evolution of e-commerce, making sure we are adapting to the emerging trends while remaining aware of changing consumer needs. As you know, the global macroeconomic uncertainty is impacting consumer buying behavior, not just at WISH, but across the entire retail and the e-commerce landscape. Over the last 12 months also, consumer across the globe have been impacted by the steep increase in energy and the full prices and the high interest rates. E-commerce spend grew slower than ever in 2022 as retail returned to pre-pandemic trend lines. But as you can still see from this graph, right? So e-commerce growth rates for the next few years will continue to be moderately positive, and we are opting things about the business opportunity ahead. We reported Q1 2023 results a couple of weeks ago. And what I would now like to do is recap some of the key highlights in the quarter. So first of all, we introduced flat rate shipping on eligible orders in the U.S. in late January and rolled it out to other major markets throughout the Q1 as part of our efforts to drive the basket building and improve the customer experience. So shipping costs has been one of the major pain points for our users on the WISH platform. And we believe flat rate shipping is critical to addressing their concerns and not only has this improved the shopping experience for our customers, it has incentivized them to build a larger basket. Our internal data shows that the average transaction value, ATV, increased by double digits as a result of the launch of the flat rate shipping. And we also launched the company's first major shopping event called Wishmas that ran from March 30 to April 5. It was a success for us to put things in perspective, right? So more than 7,000 merchants participated in the weeklong shopping event, enrolling over 800,000 product listing and 92,000 doorbuster deals. Importantly, right, we saw more than a 30% increase in GMV and over 50% order volume growth during the weeklong shopping event. Wishmas was the first in a series of the major shopping events we planned throughout this year 2023, and there is more to come. In March, we announced that our online marketplace have returned to app stores and search engine in France. So as you may know, France is an important market for WISH and we are excited to welcome new and inactive French users back to our platform. Over the coming months, we will be ramping up our marketing activities in France to make sure our customers know we are back. As we continue to optimize the browsing experience, we introduced a number of enhanced personalized category navigation and the category product feeds on both enjoying iOS platforms. The improvements we have made to the category browsing experience are for the benefit of our users. This has helped them explore the WISH catalog in a fun and engaging way, browse through the breadth and depth of WISH'S product catalog and discover products through shopping expiration. And importantly, we continue to improve our operational excellence in Q1. We saw improvements in a number of operational metrics, including on-time delivery rate, our average time-to-door customer order consideration rates, refund rates, customer NPS, buyer conversion and the customer retention trends. Specifically, so in Q1, you can see some of the figures here. Our on-time delivery was approximately 92% compared to approximately 86% during the same time period rate of last year, 2022. The average time to door in our major market improved by 8 days when compared to the same period of 2022. Buyer conversion and customer retention improved by 18% and approximately 10%, respectively, in the first quarter of 2023 when compared to the same period last year. I'm pleased with the progress we are making and as we continue on our transformation journey. Yes. Let's talk about the growth strategy here as well. Over the past 18 months, right, so we have improved the merchant quality and the listing quality. Our key focus for 2023 is to keep improving the customer experience, which we believe plays a critical role in driving user growth. As part of our growth strategy, right, we intend to increase our DAU by investing in our guest experience, accelerating the use of the incentive for buyer conversion and optimizing our paid marketing efforts and modernizing our apps to drive channel growth. So with that, let me pass the time over to our CFO and COO, Vivian Liu, who will expand on the operational priorities for 2023 and discuss the company's financials. Vivian, over to you.

Thank you, Joe. My commentary on the operations will be primarily focused on the supply strategy. As a market platform -- marketplace platform, our merchants are very important and critical to our success as well. And that's why we developed this supply strategy that really focus on merchant side of the story. Our supply strategy starts with a clearly identified WISH identity. WISH aims to be the online shopping destination for home and life products that offer great value for price. WISH is already known for its breadth and variety in products, but we also have very strong focuses. Our high-touch categories include women's clothing, home decor, beauty products and consumer electronics. We are very focused on building supply differentiation through those categories. We work closely with our merchants from all over the globe to bring quality products at a very competitive price to our buyers. But we also understand that the local supplies are very essential in creating personalized and fresh shopping experiences to each buyer markets that we serve. And therefore, we are building close relationships with local merchants in all the major buyer markets that we serve. On the front end, we leverage deals and the incentive programs to put values directly into our customers' pockets, also enabling merchants to connect with our buyers directly and more effectively. As Joe mentioned, our Wishmas promotion event was a very major success. And we will continue to build our merchandising capabilities with additional very exciting shopping events scheduled for rest of the year. Lastly but not least, logistics has been a key value proposition to both our customers and the merchants and also a very integral part of our supply strategy. Logistics has also driven being the major driver of the improvement in the customer NPS score that we saw earlier. So we are very committed to continue to deliver products fast and reliably at a very affordable price. On top of that, we also strive to provide a more ecofriendly logistics solutions or options to our buyers, such as local pickup to help them save more on shipping costs and reduced carbon footprint. Next page, please. So I will transition into our financial update. Most of our -- I should say, all the financial information presented here is also public information. So I will stay brief but happy to answer any more detailed questions later. So before heading into a specific quarter, I wanted to provide an overview for the 2 years since we embarked on the turnaround journey. So as -- so 2 things really bearing in mind, the old WISH flywheel was highly dependent on digital ad spend. So as a part of the turnaround strategy, we really focus on the core competencies of the marketplace platform and really focus on all the 3 pillars that Joe described earlier, customer trust, merchant engagement, operational efficiencies. As the green shoes are clearly demonstrated through all the improvements in the metrics that Joe shared earlier. And our turnaround strategy is working, and we're on the right track. However, at the same time, we reduced our ad spend very significantly as we focus on fixing the core competency as a platform, improving the operational metrics. And you can see in the table I showed here, the sales and marketing expense in 2022 was about 20% of what we spent in 2021. And adjusted EBITDA, so that's one major driver -- one major change we made from a financial standpoint, which led to revenue decline from a year-over-year standpoint. Separately, we also changed our pricing practice globally by removing a markup in the product prices that we listed on the platform. And that also improved the transparency with our merchants and the trust with our users and really improving the long-term retention and the merchant engagement. But at the same time, in the near term, it does -- it did create a downward pressure on the revenue and adjusted EBITDA as well. So those 2, reduced ad spend and changing the pricing practice were the 2 major reasons why the revenue and the adjusted EBITDA declined from year-over-year standpoint. However, at the same time, you saw -- you can see the cash flow was significantly improved from year-over-year. The cash burn in 2022 was less than 50% of what we used in operating activities in 2021. So our focus going forward will be primarily very focused on the uneconomics and really driving the growth in -- driving sustainable growth in 2023. So that's the context of what we have done in the turnaround journey and what the impacts on the financials as a kind of a bigger picture. Next page. First quarter financial highlights. Again, this is a public information, very similar story, as I shared on the prior page. Revenue, $96 million, 49% year-over-year decline driven by significantly reduced ad spend, also the change in the pricing strategy, as I shared earlier, and adjusted EBITDA was also impacted by the same factors. However, our cash used in operating activities improved by more than 50% year-over-year due to the same actions we took. And as of end of Q1, our cash and cash equivalents and marketed securities -- marketable securities were at $627 million, and we maintained a very strong balance sheet -- very valuable resources and capital that is required for us to continue and complete the turnaround journey successfully. We have no long-term debt, and that gave us also the flexibility in our operations to apply our capital to the most important priorities for the business. Next page. And also quickly sharing the Q2 guidance in both revenue and adjusted EBITDA, we are guiding EBITDA about $91 million to $102 million and expect adjusted EBITDA range negative $60 million to negative $75 million. So one thing to call out is that we do expect the decline due to the reduction in ad spend and the pricing changes start to flatten out. And we are hoping in Q2 and then later this year, second half of 2023, the curve of the top line start to flatten out and even start to revert the trend to upward for the second half 2023. And this will be due to the fact that we now have seen enough of the green shoes in the key operations, and we are ready to reinvest in the growth, and restart the flywheel. And we -- our expectation is that we will be able to show a more flat trend in the top line and even a slight increase in the second half 2023. So that's all the financials I have ready for today. And with that, I think we're ready for Q&A.

Okay. Terrific. Thank you, Vivian and Joe. That was really helpful. A few questions from us. You mentioned the Wishmas shopping event that you ran into first week of April. It sounds like it was encouraging for the business. Can you talk about what you're seeing with consumer demand and how are promotions like that driving car off the sidelines?

I can take that question. So the Wishmas has -- we have seen very positive reactions and feedback from both our merchants and buyers. And as Joe mentioned, 7,000 merchants sign up with a much higher number of SKUs than we expected to this promotion events. And our buyers are also -- buyers also responded very passionately, and we saw a very material improvement in the volume as well as conversion rate during that promotion week. So we heard it loud and clear that we are on the right track with the flat rate shipping and with the improvements in the listing quality product shipping time. So I think the -- that gives us a lot of confidence that we're on the right track, and we will continue to build out our merchandising capabilities with more exciting shopping events coming up for the rest -- during the rest of the year.

Maybe just to add one point here. So being part of our growth strategy, right, so we believe those kind of merchandising activity promotion campaign event will also help, right? So importantly, Wishmas -- this kind of sales events allowed us to achieve and reengage with our dormant or inactive users, right? And that's our -- one of our priorities is to leverage the broader merchandising offering and activities to reactivate our accumulative user base. I think I just wanted to add one more point here. Yes.

That's great. Any particular categories to call out that did especially well for the business?

Yes. I think they are pretty much at the high-touch categories I just mentioned earlier. And those categories are -- first of all, we have hundred millions of products available on WISH. The price and a variety of our offerings is being -- has been a competitive advantage of WISH and a key differentiation. At the same time, we do have our focus categories where we -- the team spent 80% of their time and they're driving differentiation, right? And those categories are, as I mentioned, women's apparel. And actually, men's apparel is also kind adjoining the women's apparel becoming our high-touch category. And beauty and health, consumer electronics and home decor. So those 4 categories are where our strength has been and will continue to be our differentiation categories going forward.

Can you talk about how was this particular event different than events in the past? What -- specifically what's changed that generated such improvement for the business?

I'm happy to take the first part and Joe, feel free to add. So the Wishmas, as Joe mentioned, was the first major promotional events on WISH. WISH is a flywheel used to be very dependent on performance ads, as I mentioned. And also just personal fees -- personalized fees. So when you come to the platform, you brought based on the fees, right? And we -- WISH didn't really have a merchandising function until really late last year. So this is why it's a very major milestone, and we are very excited about reaching this milestone, but also the impact of this first milestone event for WISH. And everything that we have done and improved in the core operation, frankly, led to this -- the launch of this Wishmas. Because if we didn't have the -- improved customer NPS, we didn't have the improved quality listing and the product and shipping all the things that Joe shared earlier and refund recalculation, we probably would not have launched because we want our customer base to be sticky. And then we -- when we launched the promotion event, we bring people back and/or acquire new users, and they will stay -- most likely will stay. So back to what Joe said, this is a part of the growth strategy, but we only launched this after we have seen those green shoes in operations because now we are more confident about customer retention after we acquire the customers and creating that kind of very fun, exciting shopping experiences for people to come back over and over.

Yes. I may just add on a few things here. I think, first of all, right, so the merchant-funded promotion feature. I think this is a very big difference compared to the merchandising we have in past, right? Previously, I think WISH funded everything. And actually, we oftentimes heard from our merchants, they want to engage with us to multiply, right? They want to kind of offer us the great deals and a list of functionality in the future actually really enable them to kind of fund those kind of promotion and engage with us to do this kind of a sales event. I think this is number one. And number two, I think it's on the customer browsing experience, right? So previously, we only have the fees on our home page to show some of the discounted product or just show the discount cost to our consumer, right? But with the Wishmas launched this time, right, so you can see we have a better customer user browsing experience, right? People can find the landing page, can browse by category, and browse by different kind of interest, something like that, right? So this is the thing can really allow the customer to really discover and find the great deals, right? This is the second thing. Now last but not least, right? So I think we also think about how actually we can leverage the different touch points, not only inside WISH, let's say, our Android iOS, right, and also the marketing channels, e-mail notification, everything, right? So the customer can see WISH, right, on the media on our platform, right? We're trying to make a consistent approach on the creative content stuff, right, to really make sure people can get aware about actually, WISH are rolling out those kind of events and make sure people can really find the deals. I think it is truly the major. But in addition to that, right, so as to what I shared in my presentation, I think the flat rate shipping launched in early this year also kind of helped a lot to enable those kind of big promotion event. In Wishmas, right, so we offer a certain kind of threshold basket to allow some of the free rate shipping, right? So this something definitely also can create a better customer experience to our users. Yes.

Perfect. I was going to ask about the free shipping. You just mentioned it, but do you currently offer free shipping outside of events on the platform? And if not, would you consider that?

Well, so again, right, so I think the free shipping listing, definitely, we want to leverage as incentives, right, to our customer, right? And on a regular basis, now actually, we offer the flat rate shipping. And this is the first step, right? We're kind of trying to see how actually we can address customers pain point, right, to see how actually we can reduce the shipping costs for our consumer. But I think the short answer to your question is that definitely, I think in certain periods, we have to run some of the small promotion. And then for a certain group of the customer, right, and we see how actually we can leverage the flat rate shipping, right, to really enable more users to kind of reengage with us, something like that. But a list have been in the longer term, right, definitely the product operation team, definitely we think about, right? So how actually we can define our kind of shipping solution, right, to our consumer in the longer run. Yes.