Weimob Inc. (2013) Earnings Call Transcript & Summary

Good evening, ladies and gentlemen. Welcome to Weimob Inc. 2019 Annual Results Conference Call. A copy of the interim results announcement can be found and download from the company's Investor Relations website at http://group.weimob.com/en/page/relations. [Operator Instructions] Now I'm handing the conference over to your host today, Mr. [ Cao Haidong ], Weimob's Investor Relations Director. [ Haidong ], please go ahead.

Thank you, [ Warren ]. Ladies and gentlemen, welcome to our 2019 Annual Results Conference Call. Joining us today on the call are Mr. Sun Taoyong, Chairman of the Board and CEO; and Mr. Cao Yi, CFO and Joint Company Secretary. The call will be conducted in Chinese and English. Before we begin, I would like also to remind you that the management comments during the call will include forward-looking statements that are based on our current expectation. All statements other than statements of historical fact during the conf call are forward-looking statements, which are subject to a number of risks and uncertainties and may not be realized in the future or [ indiscernible ]. Information about general market conditions are coming from our retail associates outside of the company. The presentation also contains some non-GAAP financial measures that should be considered in addition to, but not as a substitute for measures of the company's financial performance comparing according with IFRS. So please do take a minute to read the risk factors and non-GAAP measures discussion in Weimob's 2019 annual results earnings release. I'll now turn the call over to Mr. Sun.

[Interpreted] Distinguished investors and friends, I'm Sun Taoyong, CEO and Chairman of Weimob. And today, I would use Chinese to deliver my speech, and I am the interpreter for Mr. Sun. So welcome. Warmer welcome to our financial results conference call. Since we have several new friends here, so I'd like to have some minutes to introduce our company first. So Weimob is a solutions provider of the smart retail and smart commerce, and we have set up the bridge connecting the merchants and the users and to have the targeted marketing and a comprehensive solution. And right now, we have set up these 3 clouds: the Commerce Cloud, Marketing Cloud, Sales Cloud. And also, we have our Weimob Cloud Platform. And our solutions is mainly helped with the Tencent, and we set up this bridge connecting the merchants and the users. And a lot of these commerce, we would use the Mini Program and the public account. And our mission is to help, with our solutions, to help our merchants -- our merchant customers to have their digital transformation and use technology to have their commercial upgrading and the smart retailing. And specifically for our products, we have mainly 2 core business: one is the target marketing and the other one is SaaS. And in the SaaS, we have Commerce Cloud, Marketing Cloud and Sales Cloud. And also, we have the Platform Cloud. And the core business in the cloud is the Commerce Cloud. And mainly is faced to the e-commerce, retailing, the restaurants and the takeaway and localize and the hotel. And our Marketing Cloud is to display the creative products for our customers and also to provide the digital capability for our customers. And the Sales Cloud is to provide a comprehensive sales solution for our customers. The targeted marketing is to use the mobile and the internet and advertisement platforms such as the Tencent, [ Toutiao ] and TikTok to provide the solution for customers to have a targeted marketing. And now let me come down to the highlights of our 2019 financial year. Our total revenue for the year ended December 30, 2019, reached more than RMB 1.144 billion (sic) [ 1.44 billion ] and up by 66%. And also our EBITDA has reached just slightly from approximately RMB 170 million. And worth noting is that our SaaS increased by 46.1%, reached RMB 510 million. And under this not-so-good background in the 2019, our gross profit of the targeted marketing still has realized the 100% of increase which to RMB 5,280 million. And our very remarkable increase of SaaS is due to the increase of our margins and also they are up and the -- especially in the smart retailing. And our brand users have reached more than 200. And also, we have an increase, I think it is more than 125,000. And our smart restaurant and smart SMB also have reached more than 4,600, and it's much more than the e-commerce department. And also in the beginning of this year, we have acquired Yazuo CRM and I think that there will be a large market potential in the smart SMB. And I think we have specifically noted about the market and also the strategic cooperation. So I will not go down in detail this time. And now let's get to the specific business. And first of all, I'd like to introduce those one solution comprehensive -- one-stop comprehensive solution, and why is it different from the others. And we know that there's a key word this year, it's about this private domain, the traffic. And we can see that on the left is the centralized public domain traffic and on the right is the private one. And we can see on the left, there are many pain points in this system of decentralized styles. For example, there is not too diversify the traffic source and also the merchants cannot control the data of their users, and they cannot reach their users very efficiently. And also, there remains a very high cut and high commission by the platform. And so that has increased the acquisition cost. And also, especially during the coronavirus period of time that this high commission is really very painful for the merchant. And for -- from our side, we are decentralized the style and so that we can connect to these merchants and the users. And also, the merchants can have the data of their users. And also, in the later stage, we will only charge the technical support fee. So that the cost base is very low and also they can control the data of their users. So our merchants become more and more satisfied with our solutions. So we can see that it has already become a mainstream carrier. And also the style in the U.S. and in China and especially after this virus breakout, we can see that there will be more and more importance attached to the private domain traffic. And also the data has become more and more important, and this will all transfer to the decentralized private domain such as the Mini Program. And I think that there will be a huge market share. And specifically about our SaaS products, we mainly include those e-commerce and the retailing, restaurant takeaway, local life and the marketing. And also, our core focus is on the e-commerce and also about the retail. Retail is more about the business chain stores. And since that they existed as the form of the store, so our charging model is divided by the stores and also the technical software. And also, this -- yes, office is higher than the e-commerce. And we can see the commerce -- the merchant's number is increasing very remarkably as well as is up in the 2019. And also, our attrition rate is very low. And about our targeting -- targeted marketing, and we may make in the -- like the decorating, furnishing and also the fabric and also the wedding. And we can see that the business is quite even among all those assortment. And we can see the expenditures of our advertisers is increasing very notably. It means that their budget is increasing and also purchasing is increasing. Also, our remarkable results cannot do without the help of the Tencent. For example, their help in the Mini Program, they are -- WeChat Pay and the smart retailing and also Tencent Cloud. And about the outlook in the future. And we still focus on the core of our digital transformation and take the SaaS of our core strategy to provide the cloud service, especially to increase the portion of our Sales Cloud and the Service Cloud. And in the Commerce Cloud, we will still focus on the e-commerce. And we think that we have the advantages, very notable advantages, in our -- the numbers of our merchants. And also within the proportion of the smart retailing would be -- become much higher in the e-commerce and this Commerce Cloud. Therefore, as also we would carry out the strong cooperation with our enterprises in the up and downstream for this chain. And we think that the e-commerce and retailing will be a much great picture. And about the restaurant takeaway, we still have a -- we will remain this a strategic position. And since, as I have said that in the beginning of this year, we have acquired, so Yazuo Zaixian. And also, we have invested in [ Xhangyou ], this competitive solution providers to include all the service link such as the ordering and the delivery and also the menu. So that's our -- I think that's our main differentiation is the decentralization, so that we can create to have more private domain, data and traffic and to improve our service for the customers. And in the future, we think that we would improve our liquidity -- capabilities of our customers. You can see that in our SaaS and also the targeted marketing business, we have already improved there, up. And we think that in the future, the strategic focus will be increase their liquidity capabilities. And in the future, we would have more cooperation with those decentralized platforms. Tencent will remain our main partner. And also, we will reach out to Toutiao, Baidu and TikTok and the other platforms. And also, we would improve the cooperation on our cloud platform and to attract more third-party developers to cooperate with our merchants. And recently, we have serviced many large customers, and we think that the future could have more space for that. And from the end of last year and through the beginning of this year, we have many movements in the investments and the acquisition. So that in the future, we would have more strategic outlay for the industrial acquisition investment. And now we will come forward to our CFO.

Okay. Thank you. This is Cao Yi, CFO of the company. Next part is financial highlights. The past 2019 has seen an increasing headwind in the macro economy. Nevertheless, we delivered a strong performance. Total revenue was RMB 1.4 billion, 66% year-over-year growth. Revenue from both segments increased significantly and contributed to the total revenue growth. In terms of revenue dollar amounts, SaaS represents 35% and target marketing represents 65% in 2019. In terms of number of paying merchants, our core business, SaaS represents 70% and target marketing represents 30%. The trend of improving operating efficiency continues in 2019 as a percentage of operating expenses as of revenue further decreased to 59%. In 2019, we booked a profit of CNY 311 million. Excluding one-off items like fair value change of preferred shares before the IPO listing, share-based compensations and listing expenses, the adjusted net profit is CNY 77 million, representing a 52% year-over-year growth rate. In addition to the strong financial performance, the financial position of the group is solid. By the end of 2019, total assets is CNY 3.3 billion, net assets is CNY 2 billion and total cash and cash equivalents plus term deposits amounts to CNY 1.3 billion. Next is a detailed revenue page. As we can see, total revenue grew from CNY 865 million to CNY 1.4 billion in 2019 with a year-over-year growth rate of 66%. Revenue grew at both segments. SaaS revenue grew 46% from CNY 347 million in 2018 to CNY 507 million in 2019, and target marketing revenue grew 80% from CNY 580 million to CNY 930 million. Although revenue mix slightly changed year-over-year in favor of target marketing, in terms of paying merchant mix, SaaS remained relatively stable, around 78%. One of the highlights in 2019 is surge in SaaS revenue growth. After launching various products in 2018 targeting at off-line markets, we have seen strong growth in new segments which bring more momentum in revenue growth. The year-over-year growth rate of SaaS revenue has been accelerated to 46% in 2019. Among them, Commerce Cloud represent 80% of SaaS revenue with a year-over-year growth rate over 50%. Number of paying merchants grew by 23% from 64,695 to 79,546 in 2019. And the ARPU increased by 19% from RMB 5,365 to RMB 6,373 in 2019. The momentum we've seen in the first half in the ARPU growth rate has continued and accelerated, indicating the achievement we have been made in exploring offering off-line markets with more medium- to large-sized merchants with a scalable pricing policy. 2019 was not a good year for the advertising industry. Yet despite all the headwinds, we have doubled the size of our target marketing gross billing to RMB 5.3 billion and achieved a revenue growth of 88% to RMB 930 million in 2019. The strong growth in gross billing were mainly driven by both the increase in the number of advertisers and the average spend per advertisers. Number of advertisers increased 19% from 28,000 to 34,000. And average spend increased 77% from CNY 87,000 to CNY 155,000. Our target marketing revenue consists of gross billing recognized in both net and gross method amount a total of CNY 5.3 billion gross billing, CNY 673 million gross billing were booked revenue by gross method and revenue so booked is CNY 571 million. The remaining gross billing of CNY 4.6 billion is booked revenue using net method and revenue so booked is RMB 358 million. The proportion of revenue under gross method increased slightly to 62% in 2019. Next page. The overall gross margin decreased from 60% in 2018 to 56% in 2019, mainly as a result of increased proportion of revenue from target marketing. SaaS gross margin decreased from 85% to 81% as we invested heavily in R&D efforts and launched a number of Commerce Cloud products in off-line verticals in the past 2 years, enhanced cost of the increase in the amortization of capitalized R&D expenditure in the cost of revenue in the current year, we will continue to invest in R&D to strengthen our product leadership, which will impact our gross margin in the short run, but we expect the growing revenue will gradually up absorb the costs and rebalance the gross margin around 80% in the long run. Target marketing gross margin went down slightly from 43% to 42%, mainly due to the increased proportion of revenue under gross network. We continue to see the trend of improving operating efficiency. Operating expenses as a percentage of revenue further decreased from 63% to 58 -- 56% in 2019 after excluding the one-off listing and other expenses. The sales and distribution expenses increased from CNY 450 million to CNY 695 million in 2019, mainly due to increased sales and marketing staff cost by CNY 157 million, contract acquisition cost by CNY 47 million and rental and property expenses by CNY 26 million, or in line with our business expansion. The general and administrative expenses increased from CNY 94 million to CNY 105 million in 2019, mainly attributable to increased R&D efforts. So with our strong growth in top line and improving operating efficiency, we were able to make a profit in -- we were able to continue to make profit in 2019. The total net profit for 2019 is CNY 311 million. Excluding the fair value change of preferred shares of RMB 298 million, onetime listing and related expenses of RMB 41 million and other non-GAAP items, the adjusted net profit is RMB 77 million, over 50% increase year-over-year. So with that, that concludes the financial highlight part. Next part, we will move into Q&A.

[Operator Instructions] Our first question is [ Benny ] from Fidelity.

I have 2 questions. The first one is, just now you mentioned that the smart retail has a very large time. May I know how large the time is? And how does it compare to current penetration? If that succeeds, how high the expected growth can be achieved in the coming 3 to 5 years? This is my first question.

[Interpreted] All right. So my answer is that in -- the first is in the Chinese market, we probably would have more than 5,000 brand partners, and that is for brand. And for those long-haul customers maybe will probably more than the 100,000. And also all those have the demand for digital transformation, and they have their budget about CNY 200,000 to CNY 1 million. And so what we think that the current customers' budget would be at around averagely CNY 300,000. Therefore, in the -- and also -- and we have the core up is about CNY 200,000 to CNY 300,000. Therefore, this -- and we can multiply it by the 5,000 brands and you can figure out. And also, I think that for those small and medium markets, it will be more. And also, all of this as -- we would charge for the extra -- for their subscription. And we think that after we reach these customers, and then they would have more demand for us or our relationship or our ties would become closer. And right now, we have realized 100% of the purchasement rate. And we think that they have the need to purchase more store, and there will be more potential market for them. And also, we can -- maybe we can have more opportunities in the cross-sell, for example, the advertisement launch, advertisement reach to our customers, and then it would increase our charge. And then when our ties becomes closer, maybe we can have the opportunities in the live streaming on our platform so that we can have much more commission. And so all in all, that in our trends -- the transcription is about maybe 1.5 billion to 3 billion of users. And then after the transcription, we can have advertisement and also the traffic transaction and that it could become more opportunity for our business and then it will have a larger market. And then so for this March retailing, we think that we have more than 44 -- we have 44 million of sales volume, and -- which is reached within only 1 year because even though we only started from the end of -- from last year. So we think that in the next 3 to 5 years, the growth rate would have a double that. And right now, the penetration rate is not so high, but we started only last year. And right now, the coronavirus break out. And we think that it's probably -- it's also a [ brand in disguise ] because it could accelerate the transformation of digitalization. And we think that in the future, we could have 30% to 40% of market share.

[Foreign Language]

[Interpreted] Right. So about the incident by the -- in the end of February. And this is mainly -- probably about the access management is not so well-developed and -- for the hackers and also the network penetration. So that you will have improved the internal control and management and also to have a specific and a more clear division of the technical access. And also so that in order to avoid the instance happen again. And also, the second reason is that, previously -- right now, we are moving all those core data and the devices onto our cloud. Because previously, we have the mixed cloud. Our external servers are in -- on our cloud, while the core servers are in Tencent. And -- but right now, we want to integrate them together. And right now, we have moved 30% onto the integrated cloud. And with that within 1 month, we would transfer all the data onto the integrated cloud. And so that the -- with the help of the Tencent, they can guarantee the data self-security. And also, we have the several backups in the 4 cities like Beijing, Langxi and Hangzhou. And also, we have the multiple cloud backup. We have also -- have the third-party cloud to make sure that the data is very secure. So in this way, that I am very -- I think I can guarantee you that in the digital energy data security, no partners or no platform has the investment as big as we want. And also as specific as ours. And we think that the investment into this data security would increase by 10%, but it is a must to invest and it can guarantee our data security.

Next question is [ Lee Donghai ], [indiscernible].

[Foreign Language]

[Interpreted] Okay. [Interpreted] Okay. So about the influence of the incidents on the ordering and the acquisition of our key KOLs. And right now, we would say, there's almost no influence or bad impacts on the current core customers. And they also have to recover their business more or less. And we think that after the coronavirus and the incident, probably there will be some suspicious of our credits and of our reputation. But we know that the KOL, those who have signed the contract and who are pending the signage is increased 5 to 6x. And it is much higher than the peak in mid-December. And right now, we have many, those larger KOL level as the [ SKA level ], they are pending the signing the contract with us. And right now, probably because those large customers, they probably have -- needed to have more capability to support them. And also, we probably cannot meet their customized demand right now. But we think that we are improving, and we think the incidence has no impact on our KOLs.

[Foreign Language]

[Foreign Language]

[Interpreted] About our medium and the small customers, the competition is very fierce. So the question is whether there is the specifics about the attrition rate. And our answer is that because we cannot know the attrition rates without the data of the reviewing of the contract but we -- based on the feedback and also the step after-sale information, our medium and small customers are quite satisfied with us and including those have damage claim. And in the January and February, the -- probably, we don't have much new or latest or new medium and small customers. But do we think that end of March, we have seen the breakout and it's kind of the revenge breakout, so we think that in the -- we are quite confident in the future.

[Foreign Language]

[Foreign Language] Right now, I don't think that it is the right time because maybe later, we could have more business like the salesforce in Chinese market. And as there are more types of the cloud and we can put out into the market, then maybe we will have this business model. But right now, I don't think it is the right time. Maybe after we have more than 300,000 to 500,000 of the paid merchants, then we can have this model.

Next question is [ CC Tang ] , [indiscernible] Security.

[Foreign Language]

[Foreign Language]

[Foreign Language]

[Foreign Language] [Interpreted] And we think that we have the structure of SaaS and cloud. And we think that our Commerce Cloud is our core, and it's quite mature. And later, we were doing this integration. And the major direction is about the e-commerce and retailing and also the restaurant takeaways. And it probably have some overlapping with our Wei Mall, because we all have this public management and also like the live streaming. And we think that we have the retailing, we have the KA of the key accounts, more than 700 to 500 -- 7000 to 500. And also in the digital and the e-restaurant, we also want to improve our KA. And things that we have acquired, Yazuo, and they have more than 40 customers. And we think that we can improve our reach to the -- not only of the membership, but also we can increase the business in the -- like the cashier and the ordering and the takeaway deliveries, so that we can have a very comprehensive service for our customers. And also, it is also their pain point. They think that they have many service providers, but they are not connected together. So we could resolve this pain points for them. We can connect those services for them to have a 1 shop -- one stop shop for them. And also, we can have more opportunities in the hotels since we have collaborated with Xiangminiao. So the main focus is in the middle- and higher-end market. But we have already have the arrangement for the lower end market. But it seems to be coronavirus, we don't have a very good start this year, but we think that things will become better later. And also, we can improve the beauty industry later. And this year, we think that we can focus more on the Sales Cloud, because previously, we only have the sales push like the business cards, to have these kinds of management tools. And right now, we can improve this and also enlarge the service. We can include the business card management tool. And we can have the calling center. We can have the acquisition of the customers for them. So they have a comprehensive CRM management tool for our customers. It is very competitive. And right now, some of our customers have already begin to have the internal beta test of this CRM system.

[Foreign Language]

[Interpreted] Yes. Our -- yes, our answer is that the service industry is quite even for our part. So we don't think there will be a very big problem. Of course, specifically, some industry will have a huge role or impact like the catering, F&B, and also the wedding gown. They are not so good this year. And also, especially this wedding gown part. But we also have our advantage like e-commerce, e-education and e-payment. So we think that the overall situation is that this -- in some parts is decreasing and in some parts is increasing. So they are complementary with each other. Therefore, we don't have much further on our part. And also, we think that we should also not only focus on the speed, but also focus on quality like the effectiveness and the efficiency and also to have a multichannel service for our advertisers. And we have realized the increase in the -- for the last year and also this year, the first season. So we think that once, the advertisers exist that survive in our platform, then they need to increase the app. And we think that the last year, the base is 150,000. And for this year, we don't have a very exact number, but we believe that it would improve more.

Our next question is [ Yang Ling ] from [indiscernible] Securities.

[Foreign Language]

[Interpreted] Since most of customers are online, so the impact is not so big for us, and we have already recovered all those online customers' business. And also about -- there are some huge blows to our catering and also the localized business because the delivery hasn't been mature enough. And also, we are the membership model. So if they buy it online, probably we don't have a very good or very sufficient statistics for them. But however, the retailing -- e-retailing is very good for us. And maybe, previously, it is 80% of our consumers would buy in the brick-and-mortar store and 10% would buy in the Mini Program. But right now, after the coronavirus, maybe almost 100% would move to our Mini Program. So -- and also, in China, the retailing is not just the e-commerce, and they would more prefer to do the business in the -- those [ powerful ] domain, [ chartered ] domain like the Mini Program. And also like last weekend, we have done the live streaming together with [indiscernible] and we have helped them to realize 25 million of sales volume. It is quite big. So we think that the sales, I think there will be a 2 to 3x sales increase. And also, after the coronavirus, some off-line business would recover. But as previously, I have predicted that, we probably can achieve 30% of our business in the Mini Program. And after this coronavirus, we think it is no longer a very big problem.

[Foreign Language]

[Interpreted] About the attrition and we know that the -- because of the SaaS business our customers' business system and also their customer relations all have a very close ties with us and also with our regular or the other customers and...

[Foreign Language]

[Foreign Language]

Our next question is Emerson Chan from Bank of America Merrill Lynch.

[Foreign Language]

[Interpreted] And for your first question, I think that because our customers are mainly SMEs. And in 2019, we start to increase our investment into the Smart Retailing and Smart Restaurant. So I think that the renewal rates, both the volume and also the value is much consistent. And it's because of the increase of their stores. And we think that the -- probably the volume with -- the value would be larger than the volume. And about the challenges in the future. We think about the staff in China, the -- our target is more about the SMEs and there are many of them and very diversified. And the difficulty is that it is quite difficult to charge them or to cap service for them because they are quite cautious about these new things. And -- but with the economic background and also coronavirus background, maybe we think it is more acceptable right now for them. And -- because they changed their mindset, they have seen the advantages of SaaS in these kinds of challenged times. And also with the example of the early adopters, we think that this problem would be solved in the near future. And because -- and also more and more customers are -- they prefer the fast delivery, and they would -- maybe to buy more products from the SaaS platform. So I predict that in the future, 1 to 2 decades, it would be a golden period of -- golden decade for the digital transformation, whether it is BAT, those big companies or the other small ones. And of course, as for us, the Weimob, we don't think that for us a single -- we cannot single-handedly build up a digital transformation platform, but we can have more cooperation with the platform providers and Tencent and any other technical companies. Like we can provide application and they can build up the platform, so that we will have this symbiotic relationship and to have more collaboration. And I think in the future, the challenge was no longer exist there.

Next question is [ Hugh Lee ], Haitong.

[Interpreted] My question has to do with your M&A outlook. I know we just invested in Yazuo. I was just wondering if we have any more plans for acquisition, if we do, what kind of industry or what type of companies are we looking at?

[Interpreted] About the M&A, we think that's because of the advantages and complementary relation with -- in our product. For example, our M&A with Yazuo, we can have more happy with each other. And we just wish a 1 plus 1 larger than 2 this effect. And also, maybe we can do more in the beauty industry. And so that -- I think in this year, we will have some arrangements or some movement in the M&A.

Thank you. Now I'd like to pass back to [ Haidong ] for the closing remarks.

Yes. Thank you. Due to the time constraint, we will now conclude today's call. On behalf of Weimob's management team, I would like to thank you for your participation in today's conference call. If you have further questions about Weimob, please free to contact us. Thank you and goodbye. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]