Weimob Inc. (2013) Earnings Call Transcript & Summary

Good evening, ladies and gentlemen. Welcome to Weimob Inc.'s 2021 Interim Presentation. A copy of the interim results announcement can be found and downloaded from the company's Investor Relations website. [Operator Instructions] Please note that this conference call may cover non-IFRS metrics and refer to the company's interim results announcement. Joining us today on the call are Mr. Sun Taoyong, Chairman of the Board and Chief Executive Officer; and Mr. Cao Yi, Chief Financial Officer; Mr. Yin Shiming, Chief Operational Officer; and Mr. Huang Junwei, Chief Technology Officer. I will now turn the call over to Mr. Sun.

Investors, analysts, good evening. Thank you very much for spending time with us at Weimob's interim results announcement. We believe that this year, given the macro environment, there are a lot of challenges and uncertainties. This year, we know that there are many regulatory policies coming out. And so there are issues and uncertainties that investors are more concerned about. And through today's meeting, we hope that you will have clearer understanding of our company's future strategies and future policies and implications on our company. And after our presentation, there will be a Q&A session. So let me do a review of our company's results. I believe you can see our figures and data on the PPT. So we performed quite well in relation to our revenue growth. So total revenue, CNY1.38 billion, up 44.5% year-on-year; adjusted year-on-year growth, 31.7%; gross profit margin, up 20-odd percent. So GP margin went up. Today, in terms of overall loss, the adjusted loss was CNY 720-odd million. This is because of expenses in R&D, operations and also some marketing and promotion expenses. Later on, I will go through the details. This year, our Digital Commerce did well. It grew fast. For Digital Commerce, there are 2 areas of revenue: one, subscription solutions; and the other, Merchant Solutions. So revenue from subscription solutions, up 159.2%; adjusted year-on-year growth, 80.3%. Number of paying merchants, up 15.2% year-on-year; ARPU, up 56.5%. And if you look at Merchant Solutions, revenue or gross billing, up 38.7%; revenue from Merchant Solutions, up 63.8%. I think advertising environment is very optimistic. So I think we can see quite good growth. So let's do a brief review of our product system. We offer to merchants smart solutions. So we have Marketing Cloud, Commerce Cloud and Sales Cloud. For Commerce Cloud, it is for different industries. It is a complete solution from EC, Smart Retail, Smart Hotel, Smart Beauty, local lifestyle and so on. And for merchants, we offer some tools for self operation. We also offer some tools to salespeople. Xiaoke, that's within Sales Cloud. We offer 2 other value-added services, targeted marketing and TSO. And then here, you can see what we offer. For TSO, I think it can be reflected from our Merchant Solutions. At the same time, we also do targeted marketing. Now I would like to focus more on our core strategies, our 3 core strategies. At the end of 2019, we introduced moving upmarket, ecosystem buildup and globalization strategies. And in 2020, for these 3 strategies, they have been basically formulated. In first half 2021, we can took a look at these 3 major strategies: first, moving upmarket. From our financial statements, you can see that Smart Retail maintains very high-speed growth. So in terms of Smart Retail or fashion retail, our share is rising. So we are among top 100 fashion brands, and 44% are using our Smart Retail solution. And we cover, for example, home construction materials, department stores and so on. Our market share is rising. This year, our revenue was CNY 183 million, accounting for 33% subscription service revenue, subscription revenue. And then AVC rose from 220,000 to 230,000. We have 830 brand merchants that we serve. So in the retail area, I think our progress is very good. Our market share keeps on rising. And then let's take a look at shopping malls and department stores or supermarkets. Last year, we acquired Heading. And Heading in commercial properties operate convenience stores and supermarkets. They have big market share. And Weimob helps Heading to grab more business. At marketing end, we offer a complete solution to them. So on the management end, they can maintain their strong competitive advantage. And we offer the marketing-end service. So together, we form a very complete platform. Now in terms of commercial properties, Heading's market share is 62%. And then among top 100 convenience store chains, 35% was Heading's share. So by integration with Heading, we hope that in shopping malls, convenience stores, supermarkets, we can grab bigger market share. I mentioned shopping malls, supermarkets and convenience stores. Then in terms of dining or catering, our progress is fast as well. So among top 100 restaurants, we have a few of our clients. And through our integration last year with Heading, we are able to serve more catering customers. Because of the overall environment, revenue growth was not very impressive. Overall speaking, number of customers did not grow a lot. So overall speaking, the dining segment is such that we are moving from small to medium-sized customers to medium to large customers. So we are covering those customers with 5 to 30 outlets. So in the future, very small customers will not be our targets. We'll focus more on larger customers. In the future, for the dining market, it will gradually recover. And at that time, I think Smart Dining -- our Smart Dining business will enjoy better performance. TSO segments. Last year, we introduced this segment. So in terms of traffic, tools and operation, we offer a very complete chain. So it is a smart solution to help merchants. Apart from SaaS in the past, we also offer traffic and operation growth solutions to customers. In the first half this year, we served 30-odd brands, and some of them enjoyed quite good growth. For example, food and beverage like [ Chenyen ] under [ Mengyue ] and then 3C digital customers. So through TSO service, we have achieved quite good performance. In the future for TSO, we hope to serve 100 top brands, hoping them to -- helping them to achieve business growth. So in the business growth, we will then be able to get our revenue and profit. Now let me turn to our ecosystem strategy. So we have traffic ecosystem and application ecosystem. Now for traffic ecosystem, we continue to expand traffic channels. So with Douyin, Kuaishou and Meituan, we are deliberating on some collaboration. In the future, we hope that we can take over private domain business and growth from merchants. Then if they need a back office, then they will be able to open stores on our platform. Then regarding ecosystem, well, that is going to be our most important strategy in the future. So we would like to build our ecosystem. We have 550-odd developers and 1,544 applications and more than 1,000 interfaces. We work with many working partners right now. In the future, when it comes to ecosystem buildup in the coming 2 to 3 years, this is going to be our most important strategy. So later on, under business outlook, I will elaborate more. For investment ecosystem, we continue to make investment in M&A. Overall speaking, we are trying our best to expand business boundaries and enhance product depth. So we have direct investment and also M&A. And so we have also set up industrial funds with Meridian Capital and V Capital. And I think performance of the funds have been good so far. And then globalization. As I said, basically, there are 3 steps under globalization. The first step is we serve overseas Chinese. Now through the overseas agents, we are covering around 12 countries and regions. We are serving 1,700-odd overseas merchants with 51 overseas channel partners. And through these partners, we are serving overseas Chinese merchants. That is our first step of globalization. The second step is that we face the Chinese merchants and then we go abroad, we help the Chinese merchants to build express website so that the products and services can be sold to the U.S. and Europe. In July, we already launched the service, and now there are 100-odd comprehensive cross-border e-commerce pilot zones. And in the future, I think this is going to be one very important step of globalization. With the pandemic more Chinese companies are trying to go abroad with the ShopExpress tool. So for this tool, well, it serves Chinese local merchants. And in many product lines and user experience, we think that there used to be a lot of issues. And when we serve Chinese local merchants, we think we have a more competitive advantage. So the above is our results for the first half of last year. Now I would like to turn to industry landscape and business outlook. The second half of the year and also in the coming 1 to 2 years to our company, we think that these are the most important points as shown here: first, build open ecosystem; two, increase proportion of KA business; three, upgrade full chain operational capabilities; four, accelerate globalization; and five, explore strategic partnership opportunities. So I will go through all these points one by one. First, industry ecosystem. As said just now, this year, there were a number of new regulatory policies coming out. So when it comes to these new policies, what are the impact on our company? So I will explain now. This year, so antitrust regulations, Internet antitrust regulations, they are targeted at platform economy in China. So in relation to platform companies, I think the policy is to protect them so that merchants can do business in better shape. So I think this is favorable to companies like us. The second thing is interconnection of Tencent and Alibaba platforms. Some time ago, I think this is something many people are concerned about. Overall speaking, to Weimob, I think this is a favorable factor because it doesn't matter whether Tencent and Alibaba will be interconnected. Some time ago, there was already JD and PDD in the ecosystem. And it doesn't stop our company offering or serving merchants because the business models are totally different. Second there are more and more merchants on Ali who are also on Tencent. And in this way, users on WeChat can build a shopping habit and awareness. In the U.S., the Internet ecosystem is very open. So that's why Shopify has been so successful in the U.S. When consumers shop, so for brands that they know, they will visit the brand's official website. But then in China, consumers may just go to Alibaba to shop or they will just do a search on Taobao, JD. So in the past, over a long period of time, during the PC era, well, consumers or users did not have too much -- did not have a strong habit of shopping online or searching online. So now they have already formed a habit to shop on Alibaba. And in the future, with further change in consumer's habits, I think for private domain or B2C, there is going to be faster or acceleration impact. Merchants are more willing to go for private domain because costs can come down and things are more controllable. And with consumers' awareness, I think this is also very favorable to private domain. So overall speaking, let's say if Tencent and Alibaba platforms are interconnected, I think this is not unfavorable to merchants. In the long run, I think this is a plus. And then enhanced user data and privacy protection. We believe that this is a favorable factor to our company. In the past, we realized that when merchants entered private domain, so on Taobao and Douyin, they would place advertisement. And then they got people's mobile numbers, and then mobile numbers will be added to the personal WeChat, and then marketing can be done. Well, we did not promote this approach. What we advocate is that the best way of connection is to do it by means of public accounts, of WeChat. So merchants can go by means of WeChat public accounts. Then I think this is going to be a big, favorable factor. Will there be impact on advertising? No, we don't think so. Because when it comes to user privacy protection, well, of course, sensitive information like mobile phone number will be protected. In Douyin and other advertising platform, the phone number is not the only way of identifying the customer or users. There are other ID that can be identifiers of users. So in the future, if merchants can't see users' phone number then in the advertisement, that would be more a closed loop for merchants, and I think marketing effect will be better. So from front end to back end investments, they may have to make use of public account or Mini Programs instead of just taking consumers' mobile number. I think this is better for privacy protection. No matter whether we look at advertising or other areas, there won't be much impact. So these are some big regulatory policies. I think the overall trend is that I think the state is against monopoly. So they hope merchants can better run their business in the long run. Merchants' IP can be enhanced. And then monetization of EC, e-commerce, is getting higher and higher. And I think all these will form a new paradigm for business digitalization. There is a broad estimate in the future, retail enterprises can achieve the following figures: 40% of sales from offline shops, 30% of sales from e-commerce platforms and 30% of sales from private domain of enterprises. So there are some good brands, which are taking this route already. And many brands are already making these attempts. So this is going to be a trend for the future. So with changes in the ecosystem and environment, we are thinking of one matter: In the past, merchants are concerned about traffic, especially during platform e-commerce stage. So they're with JD and other platforms, so the systems -- or actually with the mobile stage, Window, iOS, Android and so on, these are the operating systems, mainly, we are going to have a new commercial operating system that can connect various scenarios of merchants and solve problems for them. So when merchants want to go for digitalization, there are many problems to solve. For example, they have to go on different systems, and each system is supplied by different developers. Data of different systems are not interoperable. And the developers of various systems will work on repeated problems: for example, interface with internal systems, interface with external traffic, interface with EC, e-commerce, and so on. So they are doing a lot of repetitive things. So we are talking about cross scenario, cross platform or cross ecosystem. Can we offer a commercial operating system, which is like Android. So when merchants are on this system, then based on the business scenarios and needs that they have, they can develop the relevant applications so there is no more the need for repetitive work. So can we introduce a new commercial operating system to satisfy merchants' need for digitalization so that we can help them deal with their data and so on. Starting last year until this year, we introduced -- or we said that we would like to introduce a Weimob new commercial operating system. When merchants are on this operating system, then there are lots of functions available to them. So internally, they may have omnichannel capability and internal management. And for example, they have stores and channels, there's the need for a system to manage all these data and so on. So if we are able to consolidate all these functionalities in our system, and then we can help merchants develop some systematic applications. For example, merchants may need to divert traffic. They may need information or service about customers and also some data products. Then there are ERP and so on. For example, third-party users, we can handle these by means of our ecosystem. So in the future, merchants only need to go on to this commercial operating system, and then subsequent applications that they need may have already been developed by third-party developers. In this way, costs can come down. And then on the bottom layer, the data can be accessible and interoperable. So that in this way, cost can be saved and future use of data can be optimized. There's not a need to repeat a lot of work, and they can focus more on the core business operations. So this is our hope. With our new commercial operating system, we can solve all the problems. So I would like to go into greater detail. Actually, this year, we have invested a lot in R&D. Last year, we have only 900-odd people. And this year in the first half, there are 1,500 R&D people. And then for the whole year this year, there may be 2,000 R&D people. So we have invested a lot in R&D. So perhaps our CTO can talk more about the system. Please?

Analysts, investors, good evening. Now I'm going to briefly introduce our new commercial operating system design. As Mr. Sun just said, we'd like to offer one-stop service, full chain SaaS application and service to merchants. There are 4 main parts. First, at the bottom, a platform. So all along, when we developed our system, well, these are some of our PaaS achievements. It is a tool which can enhance development efficiency. So in this way, we can encourage our internal developers and third-party developers to innovate. Later on, I will talk more about this PaaS platform. And then in the middle, new commercial platform for SaaS solutions. Full contact synergy, as said by Mr. Sun. So we have an inner shell. So it includes a lot of things: BPM, data BI, shopping guide, CMS, CRM and so on. So this system can benefit from all these conveniences. We can offer very rich commercial applications to merchants, for example, shopping mall, food ordering, food delivery, marketing and so on, payments and so on. Some of these applications were developed by Weimob ourselves. Some were by our working partners. Apart from the core applications, we hope that we can offer more ecosystem users, not only about ERP, payment and so on. We hope that external developers can offer such service as well. Now many of our products will be connected together so that there will be industry solution. And we encourage third-party working partners to create with us together. And there is one important point of innovation. We have strengthened the use at the end. For example, A offers a mall, and than B offers membership arrangement, but then there is the need for redirection. And this is a very bad user experience. Here, we can solve this problem gracefully. For the new commercial operating system, it will be linked to different media like WeChat, Alipay, Douyin, Kuaishou, Baidu and so on. So apart from tools, we also offer different services to merchants, for example, shop building, profit domain, operation, live streaming, advertising placements and so on. So basically, our system is an open ecosystem. This ecosystem strengthens our commercialization capability. We can help ourselves and third-party developers to offer very good applications and services, for example, PaaS capability. And customers can enjoy personalized, customized developments. This way, we can satisfy KA's need for personalization, and this is low cost. Third-party vendors can also offer some standardized use. And through our commercialization, things can be sold very quickly to Weimob customers. Third-party service providers can offer content, traffic service, module service and so on. Now let's take a look at the PaaS platform. So it includes 6 main parts, T-PaaS: T, technology. This includes multi-tenant architecture, component platform, gateway platform, framework and, too, one-stop development platform. So developers don't need to be concerned about the architectural structure. They can focus on innovation. B-PaaS. It is the capabilities accumulated over the years: transaction, order, merchandise merchants, marketing, membership, payment, logistics capabilities are all combined here. So we believe that we are able to save 60% to 80% of workload. A-PaaS is zero-code or low-code application innovation platform. We need a lot of Mini Programs. And with this, we can create a lot of new mini applications. And they can be effectively integrated with many of our Weimob applications, and we can encourage the prosperous development of the whole ecosystem. For A-PaaS, the zero-code, low-code capability is used in many of our areas, for example, games, home furnishing and so on. So these show the application of A-PaaS. And then we also offer iPaaS platform, which is used to link different SaaS users or applications together. And then data capability is given a lot of importance to our customers. So D-PaaS. This includes search, statistical analysis and so on. And by means of SaaS, we can offer these capabilities to our customers. So we have compared our platform with Salesforce, and if you consider like Lightning, MuleSoft, Force.com and so on, well, we are comparable. So we are confident that we have actually built our own product competitive advantage. Thank you.

Thank you very much. Because of time, I will go faster in the latter part of the presentation. So we have the new commercial operating system, and then we have an open ecosystem as a result. Such as now, that Smart Retail and also convenience store, supermarket business, we are able to increase our market share, and we are going to enhance penetration in various industries. So KA revenue should account for 50%. We believe that we are able to achieve this goal 1 to 2 years earlier than targeted. Upgrade full-chain operation capability. Some time ago, we issued an announcement about e-commerce, retail segments. So first, there is IBU. It is an Industrial Business Unit. There are different industrial clusters. Then it is divided into delivery, merchant operation, TSO. Basically, it lays the foundation for our operation. And then here, you can see IBU, GBU, CBU, and there are 2 lines: customer sales and customer operations. So here, you can see on the horizontal line for customer sales center and for customer operations center, it is also well connected. Globalization. I already explained our layout. I won't go into the detail. Next year in 2022, there should be quite good income figure to be released. Now I will pass the floor to our CFO, Mr. Cao.

Thank you. First of all, investors, in the past few hours should have the chance to read our announcement, our results announcement on our website. So you should have some understanding about our performance. Now in the first half of this year, I will go through some financial highlights. I think these are very related to your point of concern to many investors. When you look at Weimob, you will focus on revenue growth. And as a growth company, high revenue growth is one significant characteristic of us. In the first half of the year, our revenue was up 44.5% year-on-year. Last year in the first half, it was at a low point because of some payment of expenses. And after adjustment, here, you can see we still grew 31.7%. Digital Commerce, up 72.8%. For subscription revenue, in the past, we called it SaaS revenue, now subscription revenue. After adjustment, it's is 80.3% year-on-year. Comparing with past years, this is faster growth. Merchant Solutions revenue, up 63.8% year-on-year. Now I would like to give a breakdown of our revenue. So here, you can see distribution of different segments are rather even. For Merchant Solutions and subscription solutions, each account for about 30-odd percent, 40%; for Digital Media around, 30% share. Then for Digital Commerce, if you look at subscription and merchants, around 6:4 at ratio. For number of paying merchants, subscription solutions, 77%; Merchant Solutions, 21%. This year, if you want to understand our financial statements, you need to look at our increased investment. When Mr. Sun made his presentation, he talked about our strategy upgrade. And there are important things that we would like to achieve in the future. In order to drive the future high-speed growth in the coming 3 to 5 years, we need to start investment now. So basically, we have our 3 main strategies: moving up market, ecosystem buildup, globalization. We also need to build a new commercial operating system in the first half in order to enhance our industry and operation, and we made high investment. After considering our investment, here, you can see our operating expenses as percentage of revenue was higher than in the past. But if you disregard the investment for the future, our operating efficiency went up. Now in 2019, 92%; 2020, 89%; first half this year, around 80%. In the past few years, our financial position is solid. As of 30th of June, we have cash on hand, CNY 4.96 billion. So it can support our future development. Now let's take a look at some critical figures on the income end. Apart from the growth rates, in the first half of this year, number of paying merchant grew steadily. As of 30th June, we have 101,000. So 11% roughly is the attrition rate, more or less the same as last year. But last year in the first half, that was the pandemic impact. So in the first half of last year, 15% attrition rate. But then if you look at the half-on-half basis, it has much improved this year. So ARPU is one highlight in the first half this year. Last year in the first half, it's 3,400. This year in the first half, it rose to 5,400, up 56% year-on-year. This is a high growth. Of course, we increased price. And there was also some one-off impact about consolidation into financial statements. But ARPU growth is a long-term sustainable process to us. For gross billing, growth was around 40%. Then GP margin. Our overall GP margin comparing with last year improved. Overall gross margin last year was 49%. It rose to 55% this year. The main reason is that for Digital Commerce, the revenue accounted for a higher share. For subscription solution, revenue share increased from 25% to 40%. For Merchant Solutions, it increased from 24% to 30% in terms of share of revenue. So these are high GP business. And as a result, their increase had led to an overall increase in GP margin. Gross margin of subscription solution was slightly down from 76% to 74%. This is mainly because we acquired Heading. So overall, GP margin was a bit different. Our own gross margin comparing with last year actually improved. For Merchant Solutions, gross margin decreased because this year, apart from TSO service revenue, we increased some fee in relation to operations service. And for that, GP margin is slightly lower for this particular service. So because of a change in portfolio, Merchant Solutions gross margin came down. This is not because of a change in rebate and so on. It's because of change in portfolio or structure. Gross margin of Digital Media decreased primarily because of change of strategic focus. As such as now, in the coming 3 to 5 years, we are going to go for strategic upgrades and business growth. So we made big investment. We are building our new commercial operating system and PaaS platform and SaaS application platform. Just now our CEO and CTO already gave detailed explanation. For our operational structure, we have made some adjustment so here you'll see a line was being made separate. And we have made investment in operation platform. In the first half, concerning traffic ecosystem and brand recognition, we have also made some investments. So this year, the high investment has led to an increase in R&D investment over revenue, so from 16% to 32% this year. In the first half, total R&D expenses was CNY 300 million. Then for operating efficiency, it is improving year after year. In the first half this year, we made investment for future around CNY 290 million. CNY 290 million was mainly selling and administrative expenses. So if you deduct or exclude this CNY 290 million, you can see that our selling and administrative expenses account for a lower percentage of revenue. So this shows our operating leveraging in the future. In the coming 3 to 5 years, we hope that we can achieve quite a good return on our investment. Finally, our earnings. From the financial statements, comparing with first half last year, CNY 50-odd million adjusted net profit and we became -- we now incur a loss of CNY 210 million. That's because we have made investment of CNY 290 million, and we also consolidated Heading with CNY 30 million to CNY 40 million loss. So if you look at our own core businesses, we have achieved quite good growth in revenue and profit. So that's our financial performance. So now we can proceed to Q&A.

[Operator Instructions] First question is from Brenda Zhao of CICC.

First question -- actually, online, we have got this CRM 2 already. So how does it -- how does WeChat cooperate with your company? So for existing customers, are they willing to pay? How much are they willing to pay? Second, about investment in first half this year, you invested more into R&D and selling expenses. Under the moving upmarket strategy, how do you strike a balance between service customization and standardization of products? And when do you think you will achieve breakeven? Third question, last year, you introduced the TSO strategy. What is the progress now? When do you think there will be meaningful revenue contribution. So 3 questions from me for the time being.

Let me take your first question about WeChat. So I think in our product matrix, you can see Weimob Assistant. So it is based on SaaS products. So it can be grouped together to sell. So when merchants buy our Weimob or Smart Dining, they can continue to buy our WeCom Assistant. Now WeCom Assistant is a product where actually all solutions can be combined with this piece. So if you look at our overall progress, perhaps later on, our colleague can supplement. Second question is about R&D investment and also customization forces, standardization. Now we want to implement our moving upmarket strategy, and customers will have more and more customization demand. So why do we want to do ecosystem buildup and also the new commercial operating system? By nature, the new operating system helps us solve a lot of personalization issues of key accounts. In the past, when we did not bring in developers, there are many key customers use which are being standardized into our SaaS. As a result, there are problems. The products will become more and more overly excessive, and then iteration will be slower as a result. But then when we have third-party developers, they can do it by means of application. They can solve some KA's customization and personalization needs. Then in the future, it will be very rare that we need to do customization for KA. Now some merchants may have some sort of needs. Then through Weimob, we can then connect to our developers. Developers can develop third-party applications. Then customers can just buy directly the third-party application to solve their problems. Overall speed will be faster. So in the future, Weimob Cloud can solve customization problem. At the same time, other application issues can be resolved. Our speed will be faster in the future, and we can satisfy merchants' needs. We can be more diversified. And then concerning profitability, this year, we need a lot of R&D investments. And for the new commercial operating system, we still are doing development work from last year to this year. So at present, we are still in the process of migration. So there are still a lot of things operating on the old system. Next year, for R&D investment -- well, this year is the peak. Next year, there would be within 10% growth in the number of R&D people increase. And in the future, I think we will see more stability, and we can achieve breakeven more easily. Third question, progress of TSO. I will pass the floor to Watson to talk about it. And can you supplement also on cooperation with WeChat, please?

Thank you for the questions. For WeCom, I think it is very important to us. It is a new trend, WeCom. So at a very early stage in the market, we started to offer WeCom-related services, and the effects are very good because it is based on private domain. And in July, WeCom products are being upgraded systematically. And there are 3 versions of WeCom solutions: the first, general WeCom users. So it's more or less the same as what you normally see in the market. The second version is connecting WeCom and the mall. So it is an upgraded version. The third version is that we have connected the mall as well as advertising business. So there are 3 versions that we are selling. In July, for WeCom, we increased price. And it seems that the result has been very good. For WeCom, well, there's the need for bundling with some services. And there are already a number of bundled service providers in the tune of 1,000 or in thousands, and we think that it is going to be a new source of profits. Customers' feedback has been very good. So that's about WeCom for TSO. As Mr. Sun said, in the first half, we had already got 30-odd customers. The situation, the development has been good. And then when it comes to contract signing, around CNY 30-odd million. So progress has been quite satisfactory. We hope that in the future, in the TSO segment, we can do a better job. So we will be selective in doing TSO. Second, with this TSO model, we hope that for each industry, we can iron out the timetable. And through our operating system, we can do standardization, and then we can export products. So far, progress has been smooth and satisfactory. Thank you.

Next question from Thomas Chong of Jefferies.

I have 2 questions. First, when KA's revenue contribution increased, so what will be the impact on the selling and marketing expenses as share of revenue? Right now in the advertising industry, it is subject to impact of, for example, education and tourism industries. So in the second half, what do you think will be the development trend of the advertising industry?

Let me take this question. First, I think when key accounts contribute more to our revenue and profitability, I think the marketing expenses can come down. We will implement moving upmarket strategy. Now if you look at absolute value of cost per customer, it will be higher. But the AVC is very high, so I think marketing expenses account for a lower share of revenue. For KA, the retention as well as AVC and also value per customer developed will be bigger. So for our whole company, I think it is very helpful to our revenue growth. And in the future, our marketing expenses can come down. If you look at our salespeople, most are selling small- to medium-sized products and to small- to medium-sized customers. And in the future, when we face more and more KA, I think our marketing expenses can come down. Second question about the whole advertising industry. This year, there are full of challenges in the advertising industry because of the macro economy, and also regulation, also some industries like education, so impact on cost. For the whole company I think there is some impact over our company. I think around 5% to 6%, not a very big impact. Second, overall speaking, in the second half of the year, we will be able to achieve our target. If we are able to do that, there won't be a big problem. I think we are able to maintain 40-odd percent growth. For the overall macro environment, it is not very positive. Tencent advertising business growth in the first half, less than 20%; in the second half, maybe even lower, so for the whole year, around 10%. So we need to beat Tencent advertising as a whole, and there must be new channels, Douyin, Kuaishou for instance. So there is the need for other additional channels. And this year, there are, for example, home furnishings, wedding gown, and also some new e-commerce. They will generate some growth and increase so they can supplement to our business outcome. So if you look at gross income growth, like 30% to 40%, I believe. In terms of gross billing, I think we will focus more on Merchant Solutions. I think that is something that we are more concerned in terms of gross billing.

Next question, Brian Gong from Citi Group.

For Weimob in the first half, what is the growth in Q2, Q3? If you separate these quarters, what is the growth trend? Sometimes for Weimob on WeChat end, in the first half, it seems that growth rate was slower. But then your data looks strong. So what are the reasons behind? Then in the second half of the year. For e-commerce, Smart Retail and catering or dining, I think the base figures have already been quite high. So what will the development be like in the second half?

I will defer to CFO, Mr. Cao.

Overall speaking, for Weimob in first half, revenue growth, was almost 40%. All along, we are of the view that Weimob, as a solution serving merchants, well, 30%, 40% growth rate is comparable with the competitive landscape in the industry. We will not comment on other peers' performance because we just want to do our job well. Then for Weimob, 30% to 40% growth. So when our business is good, 40%. If there are headwinds in the industry, then 30%, I think this range is reasonable. This year in Q1 and Q2, well, I cannot really disclose the exact figures, but then in Q1, it is slightly better than Q2 on a quarter-on-quarter basis because the base is not the same. In Q1 of last year, the pandemic impact was more severe. So in Q1 last year, we were also subject to some impact. So overall speaking, some time ago, we issued an announcement on Q1 growth. So in Q1, growth was faster than Q2 on a year-on-year basis. But if you look at quarter-on-quarter, Q2 of this year is better than Q1 of this year. Last year, because of the pandemic impact, the quarterly allocation or distribution was affected.

Next question Yang Aily from GF.

I have a few questions. First, in e-commerce business, competition is very keen. Apart from traditional companies or e-commerce platforms, various platforms are exerting a lot of efforts in development. And so in the future, what would be the overall layout like? Various platforms want to go for private domain, so they may have their own private domain ecosystems. If you look at Kuaishou, will there be possibility of more in-depth collaboration? Second question, just now you talked about the new commercial operating system. So far, how is its progress. When will it be launched? How much will be the investment in the future? For product pricing, will that be changed from now? Third question about your cash on hand. You have quite adequate cash on hand. How are you going to use the money?

Let me take these questions. First question about various platforms, efforts to develop private domain business. [indiscernible] announced that they will go for private domain. There is a macro background about -- related to the protection of users' data as the [indiscernible] platform would like to go for private domain. In the past, for Douyin, well, they operated mainly on public domain. They also do live streaming, but traffic is mainly from the public domain. And we know that Douyin has also introduced the corporate accounts, and they are laying foundation for private domain. We think that when platforms or ecosystems want to do private domain, this is good to us. Then in their ecosystem, we can offer relevant solution. We think that in the future, in the private domain area, if they have a clearer view or, perhaps, they can co-build with third party. And in the long run, this is not something bad. I think that WeChat is the best private domain carrier in the future. For Taobao private domain, what will be the strategy and development height or depth, I think at that time, well, we can continue to keep a close eye. If they embrace private domain, then definitely, not by means of platform, but ecosystem. I think this represents an opportunity to us. When we talk about possibility of in-depth cooperation in the past, Douyin and Kuaishou operated mainly on public domain. We offer Mini Programs in private domain, but to them, they don't have too much incentive to introduce Mini Program. They would rather do live streaming. And I think when it comes to private domain, if they attach a lot of importance to private domain, then there may be the chance of more in-depth collaboration. That's my judgment. But so far, the situation is not very clear yet. So they -- we don't know whether they are treating developing private domain as a slogan or a real strategy. So we hope that we're able to complete the migration of the first customer within the end of this year. And then at the end of this year, our overall new commercial operating system will be online. Future product pricing, I don't think there will be much change, but that would be a clear change. When it comes to products that we are selling, they will be more diversified. They won't be single, homogeneous products. So we will offer a system, [ CR or CDP ]. So there will be many, many products. In the future, it is going to be a product mix. So we may be selling ecosystem products. So for example, Smart Retail solutions and also our way station and so on. I think the average price will even be higher because we are talking about ecosystem products. The pricing of original products won't change. But I think value from individual customer will be bigger. And after the new system is online in the future through our ecosystem, that will be the sale of third-party application. But still, we are in nurturing stage. We still need 1 to 2 years to nurture our ecosystem. In the future, there would be more contribution from these segments. And then starting from last year to this year, we are making plan and arrangements in relation to [indiscernible] or M&A. And this is about inorganic growth. So in the future, there may be some M&A. We are deliberating on some projects. In the future, there may be such possibility. So basically, that's it.

Our next question from [ Liao Yen ] CITIC Securities.

I have 2 main questions. First, Mr. Sun, for key accounts, if their revenue contribution or share is bigger, then what will be the short-term change in gross margin from 35% to 50%. That is the increase in share. What will be the change in gross margin? What will be the long-term stable range? The second questions is about TSO. Just now, it is said that for TSO, you will select large benchmark customers to work with. What are the criteria for choice or selection criteria for TSO? So in which industries or sectors do you think that there would be better growth?

Let me comment first, and then Mr. Cao can supplement. For key accounts, the share of revenue will go up. And in the future, marketing expenses will come down. But for key accounts, we will invest more in R&D. So the result may not be seen in gross margin. But in the future, there would be some improvement in our marketing expenses. Mr. Cao can supplement.

Then about TSO benchmarks, Watson can comment. As Mr. Sun said for key accounts, usually, for full life cycle, we communicated in the past with investors, LTV, [ CFC ] multiples is much bigger than small to medium customers. I think investors should look over the long term full life cycle. You should not only look at the prevailing gross margin or profitability. For key accounts, if you look at size and R&D, it's more complicated than medium-sized customers. So R&D effort will be more. But for key accounts, the stickiness and attrition rate will be such that the return on the whole life cycle from key accounts is better than small to medium customers. So please look at the overall situation. For TSO, as said just now, we will be selective in the industry. Well, we have talked about a few cases, for example, home furnishing, catering, fashion, apparel and so on. There are some specific case studies in each industry that can help us generate benchmarks. So apart from some of the customers, which are already cooperating with us, I think the benchmark cases would be very obvious. We will look at whether the customers have benchmark effect, fashion, clothing, F&B, home furnishing, materials and so on. These are our main areas of focus.

Let me supplement. While selection criteria, when we work on TSO, we want to offer more comprehensive service to customer. And we have to look at its brand influence, total volume and investment into private domain. So if we can have 100 benchmark companies working with us, then they can generate a demonstration effect. So we will operate private domain. And then in the future, we will be able to conclude more methods of operation, and then there will be automation of operation. And then the solution can be offered to more and more merchants. In the future, we hope that our merchants can be offered a very comprehensive operating system. So through building the benchmark customers, we can accumulate more experience, then things can be generalized or transferred to many other merchants and customers.

Next question, Crédit Suisse, Kyna Wong.

Mr. Sun, Mr. Cao, I have one question. In fact, I have 2 questions regarding Heading, strategy about Heading. How can you expand the operation? The company wants to enter different verticals, including like shopping mall management and other types of management. In the future, do you think competition will be more intense? You may be getting into more different products. So in the future, how are you going to deal with the subsequent competition? My second question is, your first half results exceeded our original expectation. In the second half, or what do you think will be your full year growth in subscription solutions? And also, comparing with the original target, is there any change? So in the first half, your results were good. Are you going to adjust your targets or revise your target?

First question about Heading, we want to develop more industries. Now we want to go for different industries. We want to deepen our penetration into each industry. In supermarkets, convenience stores and so on in the past, Heading mainly offered ERP products. And in business and marketing, they did not have much advantage. For us, I think we also faced some competitors. They also offer relevant service to them. With the integration of Heading and Weimob, I think it is very helpful to our future product creation. Because when it comes to more department stores, convenience stores and supermarkets, the market -- on the market end, well, of course, our product capability is a lot stronger than other competitors in those areas. So our products can connect to ERP of the mid- to back office, and then with our marketing and sales capabilities, data, transaction capabilities. So all these can be seamlessly integrated with the products. So in the future, I think Heading is going to be very competitive in products. And this will help us in developing the industry. Of course, when we enter each industry, there will be some potential competitors. But we will use our ecosystem advantage and our brand and our existing product capabilities and customers that we are serving to enhance our own competitiveness. In the future, for each industry, I think we'll be facing similar problems. So our new commercial operating system in [indiscernible], after being built, will strengthen our product competitiveness. In the second half, if you talk about our estimates, we have a moving upmarket strategy. I think it is going to be very effective for advertising. This year, because of the macro environment, advertising did not do very well. I think growth will not exceed to 20%. We cannot come up to a very optimistic estimate, so we will maintain our original estimates. And Mr. Cao can supplement.

Right. We will not revise the full year estimates even though our first half results exceeded expectation. However, we anticipate that because of the macro situation and the pandemic and some industry impacts, I think some of our merchants will be subject to impact. So in August, we are now in August. And I think the whole year target, given 3 years ago, should be achievable. We will not revise the estimate. At the end of the year, we will have further communication with investors.

Due to time constraints, we will now conclude today's call. On behalf of the Weimob management team, I would like to thank you for your participation in today's conference call. If you have further questions about Weimob, please feel free to contact the IR team. Thank you. [Statements in English on this transcript were spoken by an interpreter present on the live call.]