Weimob Inc. (2013) Earnings Call Transcript & Summary

Good evening, ladies and gentlemen. Welcome to Weimob Inc.'s 2021 Annual Results Conference Call. A copy of the annual results announcement can be found and downloaded from the company's Investor Relations website. [Operator Instructions] This call will be conducted in Mandarin and English simultaneous interpretation will be provided. Please note that this conference call may cover non-IFRS metrics and refer to the company's results announcement. Joining us today on the call are Chairman of the Board and CEO, Mr. Sun Taoyong; CFO, Mr. Cao Yi, Chief Operational Officer, Mr. Yin Shiming; and Chief Technology Officer, Mr. Huang Junwei. I will now turn the call over to Mr. Sun.

[Interpreted] Investors, shareholders, ladies and gentlemen, good evening. Welcome to Weimob's results meeting. Today, Shanghai is still under COVID-19, so we all work from home. So that's why this meeting is in the remote form. In today's meeting, there will be three parts. First of all, I will talk about our results highlights in the past year. And then CFO will go through financial highlights. Finally, there will be a Q&A session. This year, in January, we had an investors meeting. So a lot of contents were already shared at that time. So today, concerning the actual results and outlook, I will not talk too much. I will leave more time for Q&A at the back. First of all, let me briefly go through our results overview. We all know that 2021 was a very challenging year, especially in the second half in Q3 and Q4. If you look at the macro economy and the regulatory environment, there were a lot of changes. As a result, the whole industry, especially the Internet platform economy, was affected. In the past 1 year, our company achieved quite satisfactory results. We achieved total revenue of CNY 2,686 million, up 36.4% year-on-year. Gross profit was CNY 1,516 million, up 51.3% year-on-year. Last year, we increased R&D expenses. So last year, the adjusted loss was around CNY 570 million. And last year, Digital Commerce experienced very fast growth, 70.9% year-on-year growth, CNY 1,967 million revenue from Digital Commerce. Year-on-year growth was 90% for revenue from subscription service. Number of paying merchants grew 5%. So we put in place the moving up-market strategy. So that's why our paying merchants increase is not very big. For key accounts -- the number of key accounts, of course, the base is smaller. We have more than 100,000 paying merchants. And for Merchant Solutions, we have CNY 10.95 billion gross revenue from precise launch. Well, this is not very high. But then because of the overall macro situation, consumption was rather weak. That's one reason. And last year, concerning precise marketing, we did a lot to improve our gross profit and our gross revenue. So we increased quality clients. Concerning the no gross profit and also credit period -- long credit period customers, we did not take in too many such customers. So you can see gross revenue from precise launch was only up 12%. But for Merchant Solutions, its growth was 47.5% year-on-year. This is because we have new revenue from, for example, TSO, the growth is quite good. It is placed under our Merchant Solutions. I want to mention is that our Smart Retail growth for the whole year it is quite good, up 190% year-on-year for Smart Retail. Its share of subscription solution is 36%. This share is still rising. And then if you talk about Smart Retail ARPU, it is also increasing from 39,000 to 69,000. For brand customers, 1,000 and 240,000 of single brand customers. In terms of R&D, last year, we invested quite a lot from CNY 250 million last year to CNY 770 (sic) [ 775 ] million in 2021, up 200%. So almost 40% -- R&D accounts for almost 40% of revenue. And in the first half of last year, we also increased our rights issue. So now we have CNY 3.8 billion of capital on hand. Our financial is very healthy. Now let me talk about our product and service layout. As we know this year, for Weimob, we had a very important move, and that is we introduced the Weimob WOS, new business operating system. We spent 2 years on it. We invested a lot of R&D into it. And on 16th of March this year, we did a public test. So this is a new business operating system and this is the ground layer foundation. So our R&D team as well as our developers and our merchants can do a lot of development on this platform. It includes Weimob Cloud PaaS platform and all our products, application services and solutions. All these can be extended on this operating system. We provide SaaS products to external parties, including our own SaaS products, and also through the cloud market, we offer third-party products. At the same time, different products are being grouped into different solutions. For example, Smart Retail, Smart Dining, Smart Superstore, Smart Fresh, Smart Hotel and other solutions. When we offer SaaS products and solutions, we also offer many value-added services; for example, advertising, precise marketing service, integrated marketing, private domain operation, growth operation service. So in other words, these form very complete product and service layout for our system. Now we introduced 3 main strategies: moving up-market, ecosystem buildup, and globalization. In the last Investors' Meeting we gave a lot of introduction and explanation. So this time I won't go into all the details. Looking at moving up-market, here you can see our results being very significant. Since we introduced this strategy [ through ] today, you can see many figures which shows that this strategy is very effective. So Smart Retail revenue, CNY 426 million, accounting for 36% share of subscription solution revenue. And then the number of Smart Retail merchants, up 66.4%. For our Smart Retail revenue, up 194%. And proportion of top 100 fashion retail 44%, proportion of top 100 commercial real estate 40%, percentage of top 100 convenient store chain 35%, and proportion of top 100 restaurants, 41%. Because of the pandemic, well, Smart Dining did not grow as much as expected. However, in the area of dining, after the end of the pandemic, we believe that it will see some good expectation. But then that business only accounts for less than 5% of our subscription revenue. So for dining, I don't think we need to be too concerned about its revenue. So concerning moving up-market in the future, where we can see that in China, there are many retail or chain groups and they see Weimob as their first choice service providers. They do not only use one of our services, but they use many of our services. As long as we offer a certain solution, they would be happy to use Weimob to provide for their services. So we believe that we will enjoy big growth in this area, moving up-market. Then concerning ecosystem buildup, well, our platform will be more open. In terms of third-party use, there will be even more. Last year, there are 50 new quality ecological partners and more than 400 new releases of cloud markets application service and revenue of year-on-year growth from ecological partner 5x, okay? So now with WOS, I'm sure that third-party developers will be developed -- more of them will be developed and as a result, there would be more third-party cloud market use and services can be provided. Then in terms of globalization, we launched the ShopExpress product, and the growth rate has been fast in past 1 year. We are popularizing the product because in the market, there is Shopify, which is already very popular, and they have been in the market for some time. So we are laying out our products and the ecology. In the past, there are more than 40 third-party service providers. We are expanding the number. We help the Chinese enterprises to cross the border to the sea. Now I will talk about our 2022 business outlook. I have set out 7 points. So in our results announcement, there are some detailed explanation of the 7 points. To be more specific, I think you are more interested in WOS because we put in a lot of R&D people, and we spent 2 years, made a lot of investment into it. On 16th March, we officially launched it for a public test. And now, for new users, they are already on this new system, WOS. And merchants have been gradually migrated. We believe that by 30th of April, all merchants will be totally migrated. Then at that time, all Weimob merchants will be operating on WOS. So I think -- what does WOS represent? In the past, Weimob was a 2-based company. Now we are moving towards an ecosystem-based company. So it enhances our R&D efficiency. At the same time, merchants' diversified needs and developers' diversified needs can be better satisfied. So we can offer a better and more convenient service. Now I will ask our CTO to spend 3 minutes to talk about WOS. I think in the past, Mr. Huang has been leading the work on WOS.

Yes. Thank you, Mr. Sun. Now I will spend 3 minutes to quickly go through WOS. Our original intention of doing WOS is that we want to go for digital transformation as a service company, and we realized many pain points encountered by companies. In the market, there are many SaaS products and customization companies, but they are not able to satisfy clients' needs. So we have accumulated a lot of experience in the past 10 years, and so we have formed this decentralized business operating system for the future, that is WOS. WOS is fast in iteration and it is flexible. It is -- it can be self customized and so on. WOS includes 3 dimensions. First, for WOS, we hope that it can maximize the satisfaction of customer needs. So surely, WOS is a SaaS application platform with good business experience. If you look at private domain and also [ Weimob ], these are some products already available. And together with our working partners, there are other users and applications. So from app all the way to mini programs and data, they have formed a profit domain accumulation, so customers can be satisfied. We believe that all these can offer full link [ foreseen ] one-stop application. So this is about SaaS application platform. And as Mr. Sun just said, WOS is high in R&D efficiency. And in the future, it can also -- it is also a PaaS platform that can provide service to the external parties. For this PaaS platform, well, we created it with our past 10 years' experience in product and technology. It can enhance working partners', third-party developers' efficiency, and merchants' efficiency. We can also create new business model with [ that ]. Finally, for the SaaS application platform and PaaS platform, we believe that our working partners, our customers, together can innovate at low cost, because the business keeps on changing. So we must be able to innovate at low cost in order to catch up with time. So we hope that together with our customers and working partners, we can accumulate and create some new applications and new models. So with working partners, we will service the merchants well, and we want to satisfy the customized needs. And then when enterprises use WOS, we can see that there are 3 advantages. First, we can realize more efficient product development. So faster product development and faster iteration. For core products that customers are already using, there can be faster integration -- iteration. There are new opportunities, new themes for us to launch new products. When customers use WOS, they can get better experience. As said above, so application, data are unified and there is full chain [ full link ] foreseen, and then customized needs can be more effectively linked and satisfied. Finally, through WOS, we hope that for WOS -- for Weimob ecological applications, we can offer better experience. So all working partners can offer richer applications and services to customers on the WOS system. So that's all from me. Thank you.

Thank you, Junwei. Thank you for the detailed explanation about WOS. Actually, when Weimob developed WOS, well, it is in line with our moving up-market strategy. With the strategies about moving up-market and ecosystem buildup, I think they supplement one another. So when we developed WOS, that's because if you look at standard SaaS solutions, they cannot really satisfy all our key accounts' needs. So that's why we researched WOS. So in the future, when more and more merchants, core systems use our WOS than in the past, they may have to be linked to 10 applications and 10 service providers, and the internal system will have to be integrated with these 10 providers' systems. And let's say, if there are 3 to 4 different mini programs, then they will have to have different scenarios and the IT may not be standardized. But when clients go up to WOS, then our system can become the foundation layer and all third-party operation can be built on this system, no matter whether we're talk about connection to the internal system or integration with users and merchants. So everything can be unified. So when they do asset management or digital asset management, I think things will be easier and faster and convenient -- more convenient. If you look at the WOS operating system, if you look at Ali and JD, well, it is more centralized. But if they want to open a store in a decentralized way, then our WOS can help them. So for Weimob, in the future, our strategic goal is to be focused on KA customers and continue to lead. Our WOS serves KA customers. It can satisfy KA customers' needs for customization. And through the WOS ecology developers, more customized needs and applications can be developed. We can offer more products and services. This year, if you look at some key characteristics, we can see that many groups, where as long as there are products and services from Weimob, where in the past, we offered Weimob and now Smart Retail. So if they have need for CDP and MA or enterprise Weimob, they will patronize Weimob on all these. Sometimes, in some of our services, it is developed by third party. For example, super shopping guide. So they will still use it. And we have traffic products and data products. So for merchants, they only need to go to our back office and then they can get all these. So you can see our new WOS. So here, our back end is also greatly transformed. There will be seamless integration, and unified experience can be maintained. So here concerning moving up-market, we believe that next year, revenue will account for like 50% of SaaS. I don't think that will be a problem with this target. And next year, for Weimob, revenue from KA customers will dominate. And so for our moving up-market strategy in the future, we have a bigger goal. We hope to serve 2,000 retail brands of China. And we hope each brand can give us 1 million subscription revenue. For this 1 million, looking at now, we are only 200,000 to 300,000, but 1 million is very probable. In the future, there will be a lot of 7+X products. We have so many, like MA, CDP and so on. We offer many value-added service, private domain, public domain and so on, traffic-related products. So I think 1 million -- well, 1 million doesn't include advertising. It only refers to subscription. So in the future, we hope that this will give us like 2 billion, and 2,000 clients each offering 1 million to us. So right now, we have 6,100. So with this pace, if we can get 2,000 with 1 million each, we believe that it is highly possible that we can reach the target. Focus on KA customers' ecology, ecosystem is very important to big customers. It is not only a simple solution that can meet their needs. It is different from top out. It is not like opening a store on Taobao, then there will be traffic. Well, in the private domain, the situation is very complicated, from traffic acquisition to traffic coverage to traffic operation, and also accumulation in the digital market, customers' insights and understanding, everything is very different. So the situation is very complicated. Apart from Weimob's core products, we need a lot of third-party developers to work with us. They can offer more customized solutions and personalized services to satisfy merchants. So TSO food chain, well, we performed quite well in this regard, CNY 50 million in the whole group. And then 50% [ our ] TSO revenue quarter-on-quarter CAGR. We now serve 50-plus TSO full link paying merchants. For the whole year, we did CNY 2 billion TSO merchant GMV. For private domain such as now, I think it is very comprehensive already. So we communicate well with customers. In the retail scene, it grew fast. We offer OneCRM to help customers to do asset management and then we have them do insights and precise marketing, cognition (sic) [ recognition ] and insight and so on. This is CDP plus MA. And then for sales, last year, we can see that our [ shell cur ] grew quite well. For the whole year, 8,000 new paying customers growth is good. We got a lot of recognition from different capital providers, and we are almost nearly CNY 10 million. So this is a new growth driver for us. Finally, 7+X, a growth flywheel. So all Weimob products are built on our WOS ground layer or base. And if you talk about our core products, they are related to 7 scenes: Transaction, traffic, shopping guide, data, CRM, WeCom and CDP. These are products made by ourselves. At the same time, we offer Weimob Cloud market through third-party developers. So products on top of the 7 core products. So these are common users. Smart Retail, Smart Dining, Smart Superstore, Smart Fresh, cross-border to the seas, Smart Beauty, Smart Hotel, Smart Tourism. In the future, just now I emphasized moving up-market. In the past, Weimob was based on transaction and traffic. Now if you talk about shopping guide, data, CRM and so on, there would be related products to be sold to our brands and retailers. So in the future, additional purchases of each customer is one important point. Then I will now defer to Mr. Cao to go through our financial highlights.

Thank you, Mr. Sun. Now I would like to go through with investors, our 2021 financial statements and some key highlights. So at today's close of market, we published our financial statements. So if you have read them, you will be able to do some detailed analysis of our financial data. So in the past 1 year, we developed our business. And also, together with the macro backdrop, I will present and explain to you our major financial highlights. Five key points. First, I think you need to look at past 1 year overall environment to understand our financial statements. In the past 1 year, the most important characteristic is that it is a year full of major changes. In the beginning of the year versus the end of the year, first half versus second half, there are a lot of differences and contrasts, including the macro environment and fundamentals in the economy. However, we believe that no matter whether you look at macroeconomic cycles and regulation in the industry, the medium- to long-term development logic of the industry doesn't change. But then for external challenges, there are a lot of changes. So given such difference and also uncertainty in the external environment, when we formulate our strategies and business plans, there was even more uncertainty. So when investors read our financial statements and our future development, please interpret the information with such a backdrop in your mind. Five key points. First, given the ever-changing situation in the past year, we made great efforts and as a result, we delivered quite satisfactory results. In 2021, group total revenue was adjusted to increase by 30.1% year-on-year. So adjusted means that we made adjustments to the 2020 base figure. In 2020, there was some adjustment made to the revenue. And we have made back adjustment -- reverse adjustment so if you look at year-on-year comparison, things will be more meaningful. Digital business revenue was adjusted. Year-on-year growth, 57.8%. Subscription revenue grew 65.5% year-on-year on adjusted basis. Merchant revenue grew 47.5%. These growth rates are better than our estimates at the end of last year and beginning of this year. Business synergy development. In 2021, if you look at distribution of revenue and number of paying merchants against revenue, subscription accounted for 44.2% of revenue; merchants, 29%; Digital Media, 26.8%. By number of paying merchants, subscription, 63.1%; merchant, 35.5%; Digital Media, smaller, quite small. In the past year, because of changes in the external macroeconomic environment, our development strategy was changed from input-driven to efficiency driven to get revenue growth. In 2021, as said, our moving up-market ecosystem buildup and globalization strategies were such that we invested more into manpower. Strategic development -- strategic investment was CNY 682 million. And if you look at adjusted profit of this year, there would be much change as a result. However, a big part of that is for -- is strategic investment for the coming 3 to 5 years development. In 2022, we will attach more importance to lowering cost and enhancing efficiency. Operating efficiency has improved, if we consider our strategic investments. And if we exclude that, operating expenses in 2019, while comparing with 2019, kept on decreasing. Overall, balance sheet is healthy and total assets, CNY 9.4 billion. Monetary funds and time deposits, CNY 3.8 billion. So in the coming 2, 3 years, in terms of capital, we still have some assurance on funding availability. Next page. In terms of high growth in business scale, we can look at subscription revenue and merchants. So in 2021, we implemented our moving up-market strategy. So Smart Retail brand customers are the representatives. And so there is high growth. Now the number may not be very significant, but then the average price is very good. Customer stickiness is very high. So for subscription solutions, number of paying merchants at the beginning of the year was 98,000 and then it grew 5% to 103,000. ARPU was up 57.7%. So ARPU grew 30%, if we exclude certain impact. So this still shows our moving up-market strategy. For churn rate, 23.3%. It went back to a normal level. So we have a healthy growth in number of customers and healthy churn rate and rise in ARPU. As a result, we enjoyed 65.5% growth in terms of growth in subscription service. And then for Merchant Solutions, it is represented by precise marketing and advertising. And also in 2021, we kept on expanding our service revenue, advertising revenue and so on. For advertising industry, it was affected by the economic cycles, and there is also social advertising, which has not been very favorable. Our precise marketing business keeps on developing good quality customers and enhance our operating penetration with PaaS and SaaS unification. Our gross revenue went up and our monetization ability also improved to get this revenue. So it rose 27% year-on-year. ARPU was up 17.2% year-on-year. Overall Merchant Solution, revenue of 44.5%. So the industry was in an unfavorable situation, but we still kept on exploring more monetization methods and avenues. If you look at our gross profit, here you can see overall gross margin change, mainly because of change in revenue mix in 2021. Low-margin Digital Media decreased from 39.6% to 26.8%. And then for high-margin Subscription Solutions and Merchant Solutions, well, the revenue from these increased. So overall gross margin improved. Subscription Solutions gross margin last year was 74.5%. It declined to 71.1%, mainly because of the consolidation of Heading. For Merchant Solutions, in its revenue, there is more precision market and operation services and TSO services revenue. For these services, there's the need for manpower investment. So its gross margin is lower than the gross margin of precision marketing, net rebate revenue due to the different business nature. As a result, Merchant Solutions gross margin comparing with 2020 was slightly down. Digital Media is no longer our strategic focus. There is higher traffic cost and so gross margin declined further. Then if we turn to change in operation strategy, next page. In 2021 in WOS, that is, our new business operating system, we enhanced our operating capability. We invested quite a lot. In terms of number of employees, the increase was quite big. So these are strategic investments. As such as now, they are not for income growth in 2021. They are to capitalize on a favorable business and industry environment. So we make advanced investments to realize our competitive advantage. So WOS has been in the public test stage, and it will be completed soon. I think we will see initial results soon. In 2021, R&D expenses accounted for 39.4% of Digital Media revenue. And then for our strategic investments, expenses as a percentage of revenue is still coming down. In 2022, looking at changes in the capital markets and also macro economy, we emphasized the lowering of cost and enhancing efficiency. So in 2022 and 2023, through continuous revenue growth and also subscription revenue reaching 30% growth every year. And then for Merchant Solutions, reaching a 30% growth rate. All these will drive gross profit increase. So this is about expanding revenue. Then for cost control, in 2021, there were new employees. So as a result, there are higher wages expenses. But then we improved efficiency, and we optimized our organizational structure. We enhanced contribution per employee in order to improve our cost. So [ overall ] speaking, for 2022 and '23, we made an initial estimate. Our goal in 2023 is to achieve a breakeven between expenses and revenue. So today, if you look at our bottom line, you can see that the 2021 adjusted EBITDA and also adjusted loss comparing with 2020 have increased quite a lot. However, we still need to look at our CNY 680 million strategic investment. And in the past 2 years, we acquired Heading and also the dining business, they led to CNY 200 million to CNY 300 million loss. As a result, the adjusted loss came down to a loss of CNY 320 million. And originally, in 2020, it's a profit of CNY 299 million. For adjusted EBITDA, again, there is a loss of CNY 566 million. So for Heading and the other, they brought about CNY 200-odd million loss; strategic investment, CNY 680 million. So comparing 2020, our profitability still improved. So I hope that you can analyze our financial statements in greater depth and you will be able to see this point. So that's my initial analysis of our financial statements. And together with the results announcement today, I hope that the information will be helpful to you. Now we will proceed to Q&A.

[Operator Instructions] First question, CLSA, [ Yao Yen ].

[Interpreted] I have 3 questions for the management. First, Mr. Sun and Mr. Cao, for the whole year, what is the overall advertising outlook? Second, in February, the official account was already launched, so in the future, if you look at short-term and long-term plan, how is your strategy? Third question. My third question is related to Tencent. Tencent said that in the future, they will invest more into PaaS and SaaS. And in the commercial area, they have introduced some small store products and related products. So in the commercial SaaS, how is your cooperation and competition with Tencent? I have 3 questions for you. And the first, could you share some view on the outlook for the advertising industry throughout the year? And the second question is that since we launched our new commercial operating system. So could you share any information about the monetization method in the short term and long term? And the third question is that Tencent also mentioned that they will invest in PaaS and SaaS in the future. And we see that Tencent launched lots of products such as retail in stores and also cloud more in commercial field. So could management share some view on -- about the competition and/or the cooperate with Tencent?

Thank you for the question. First question is about advertising outlook. For the macro environment, last year, since the second half of last year until first half this year, we can see that, for example, Tencent and ourselves, we are affected in terms of advertising. So if you look at Tencent's estimates, the number is not so high. For us, well later on, perhaps Mr. Cao can give you some idea. For the first half, we believe that we need to be more cautious for the advertising market. In the second half, it will improve. If you talk about resumption of consumption and so on, I think as a result, there would be more investment into advertising. The first half will be tighter. Second half will be more optimistic for Weimob. Well, we have built two very important channels in the future, for example, Little Red Book and Kuaishou. [ And ] overseas channels, we will increase our layout in order to drive new growth in the future. Perhaps Mr. Cao can elaborate more on the outlook.

Okay. Yes, this year, up 'til now, the industry is still facing headwinds. For advertising, it is a cyclical sector. If you talk about gross revenue of advertising, it is related to the overall economy, advertisers' desire to invest and so on. So in the first half this year, there will still be headwinds. In the second half, when the macro economy improves, there will be change. Given such uncertain environment, as I said at the beginning, if I am to give a very accurate guidance or projection, it is very difficult. So I believe that overall gross revenue will be 1 point -- CNY 13 billion to CNY 14 billion. So of course, we will try our best to maximize it, and we will extend different channels. This year, apart from Tencent and [ Totyal ], on Kuaishou and Little Red Book and other international channels, we will do a lot more. We hope that gross revenue can reach CNY 13 billion to CNY 14 billion. And as I said at the beginning, when Weimob's advertising scale increases, gross revenue is not the only target for reference or indicator for reference. In the past, we worked on scale because we emphasized the fast growth in scale. But now in terms of Tencent advertising, our share is like 10 to 11 points already, which is quite high. We are the biggest service provider in the system already. So how can we better serve quality customers by means of our value-added services like our operation and so on? How can we strengthen our monetization? So we believe that Merchant Solutions this year will exceed the growth of gross revenue. To be conservative, I think the growth rate will be 30%. That is our viewpoint right now. As regards precise marketing, we attach importance to improving gross profit. So for customers using the same service, we will choose higher quality customers with higher gross profit margin. Especially when the environment is challenging, we will not take gross revenue as the core indicator. We will treat profit as the core indicator or target. So we will be more concerned about profit rather than gross revenue. Your second question is about the launch of WOS and also monetization. Just now, we already talked about WOS. It is difficult to talk about monetization of WOS. For example, our users won't buy Android system. They buy the applications on Android system. So in the future, its commercialization is still tied to our SaaS products and third-party Cloud market applications. In the future, through WOS, we can enhance our barriers of entry and serve more KA customers. Then we can also benefit from more products. There can be additional purchase per customer. So WOS is not being sold as a stand-alone system to our merchants. But then, okay, when developers use it after creating a lot of applications where we can also share profit. So this is also one income source from our ecosystem. For this revenue last year, it grew quite well, but now the base is still small. So in terms of the -- during the nurturing stage of the ecosystem, we want the ecosystem to be prosperous first. Through our excellent product and technology in WOS, we want to service more KA clients. When there are more KA customers, then when merchants buy more of our products, and also Cloud market applications on the ecosystem, there can be more commercialization. So that is our commercialization pathway. Third question is about mini stores and so on. I will not comment on specific products, but I will share 3 points with you, which are my personal opinion. First, in the past, since our establishment 8 years ago, on the WeChat ecosystem, well, within Tencent, there are similar products competing together. But up 'til now, there is not a product which is an external third-party winning. So basically, in the past, that's the result that we have seen. So with the same interface, with the same conditions, if you talk about external third-party succeeding, well, of course, the probability is much higher. In the past, no matter whether you talk about Smart Retail or Weimob, we have accumulated very deep product know-how. Many people are of the view that in the past, we sold a store to merchants, and we charge a certain amount per year. But then that is just based on very limited product knowledge. If you talk about like Smart Retail, we offer a lot of functions as solutions. So to us, our product and technology and know-how accumulation is not only satisfied by just a single store opening tool. So our barriers of entry are very high. And this year, if you look at all Internet companies, everybody is lowering costs and improving efficiency. They invest their core resources to the core businesses. So the products -- the two products that you mentioned just now are the main focus of investment. So that's all from me. I don't know whether you still have follow-up questions?

Next question, CICC, [ Zhao Kai ], please.

I'm [ Zhao Kai ] from CICC. Two questions from me. First, this year, we can see that the pandemic is very volatile in different places. How big is the impact of the pandemic on your company? If you do a year-on-year comparison on Q1, then how is the situation like? Second question. Your competitors are optimizing their manpower. What is your manpower plan this year? If you look at the overall industry, do you think that competition is more intense or weaker? These are my two questions.

Okay. Thank you for the questions. First, about COVID-19. Overall speaking, in Shanghai, before the outbreak, in early March, when we talked about demand, demand was very intense. So this year, in terms of SaaS, we have not reduced investment. In early March when there was not a big outbreak yet, our completion of target is more or less the same as expected. Recently, the pandemic was very severe in Shanghai. In 2021, people just stayed at home. And the situation was still okay. Some people went to the offices to work, and there was no suspension of courier service. But then this time, Omicron is even more severe in terms of transmission. So there is stricter management. So in terms of final signing of contracts and payment, there was some delay as a result of the pandemic. So to us, there is impact. Of course, I think after the end of the pandemic, the demand will come back. And I believe there's only delay to us, but then the demand will not disappear. If you look at the situation since 2020, well, online digitalization has accelerated as a result. So of course, we can't say that there is very [ positive ] impact from the pandemic, but then in terms of our employees and orders, completion of targets, of course there is still some impact. I think there is delay on some order signing, order confirmation or payment, but there is only a slight impact. You just asked about year-on-year comparison before the pandemic or the outbreak. Originally, our expectation of target completion is quite good, but now there is some delay. So we need to do some more assessment afterwards. But I don't think that would be a big impact. You talked about manpower optimization. Well, not only our peers. In fact, this year, all Internet companies are optimizing their manpower. And to Weimob, we are also doing this the same work. We have the same plan. Last year, when we worked on the WOS system, our R&D people have increased 100% from 1,000 to 2,000. So of course, in the past, there were some overlapping, but then before the online of the system, we did not do much about the overlapping. But after the launch of WOS, I think there would be some decrease in the number of R&D people. For other departments, we will also lower cost and enhance efficiency in order to improve our overall efficiency. But then in terms of optimization, I think the extent will not be as big as other companies. Our optimization is only normal. It won't cause too much impact on our business. So our CFO, Mr. Cao already mentioned that this year, we hope the loss can be decreased to a large extent. This is our target. Do you have any further questions?

Next question is [ Yang Li Li ] from [ Guangfa Securities ].

Mr. Sun. I have a few questions. First, you just mentioned that for WOS you made quite a lot of investment and now it is online. In the long run, I think it will bring about a lot of benefits. If you look at some mature overseas companies, we can see that it is something beneficial. After the launch of WOS, what kind of services or products can be provided, which are not available now? And you need to make sure that the ecosystem is in place. So do you have any ISV plan? You mainly work on the WeChat ecosystem, and your strength is also in WeChat ecosystem. But now there are changes in the overall traffic. For example, there is Douyin, Kuaishou. They increased investment into e-commerce, and the model is not the same as WeChat. So for the bigger traffic channels, are you going to work on these platforms? Are you going to make some plans about merchant services on these platforms? Another question is about your cash flow.

So what is your question about cash flow, please? What do you want to ask about cash flow?

I want to know the broad situation about your cash flow and also cash balance. So net cash from operation and also, for example, net cash from like marketing and so on.

Okay. Okay. For WOS, just now, we emphasized the benefits and the advantages to us. I think, first of all, if we are to adopt the moving up-market strategy, WOS is a must because if we only rely on our services to KA customers, I think the needs cannot be entirely satisfied. You talked about applications with low performance pay ratio -- performance price ratio. Well, key customers have customization needs. So we cannot just use our Weimob people in R&D to satisfy that. We want to satisfy that by means of ecosystem so then revenue can be brought to our working partners. We can also satisfy merchants' needs. We can enhance their user experience. At the same time, that will not obstruct our R&D into core products. And there are vertical industries use or applications like mother and baby, cosmetics and beauty and other verticals. For these verticals, the yearly revenue may be CNY 20 million to CNY 30 million. But to us, if we get into those fields, the performance price ratio may not be very high. But in a certain vertical, for example, recently, we worked on a mother and baby channel, they have a lot of good resources. And if we create a solution, then the customer acquisition cost is low and they can bring additional revenue to us. So these are some nonstandard application and also market niche applications. And I think the performance price ratio will be better if we do it by means of WOS. And then for support for ISV, we have been recruiting third-party developers to give them some business nurturing and support. So we will share profit with them. At the same time, we will incentivize some good developers. In the future, we will also offer more support and nurturing plan to developers. Of course, it takes time to nurture the ecosystem. We will look at the number of merchants in the ecosystem, merchants' needs, so all these have to be connected. I think it takes longer time in cycle, and we need to be more patient. We are not only nurturing our developers, but we also create value for our merchants. That is from the whole WOS perspective. So in the short run, I think the core advantage is our R&D efficiency will be higher comparing with Weimob internally. Second, products can be more easily accumulated. 7+X and ecosystem products, they can be grouped and combined more easily. In the past, a lot of needs cannot be easily satisfied. But now with our 7+X and also our 3 core products, together with some applications, they can be combined into a solution. So things are very flexible. In the past, among our merchants, if developers developed some mini program, and we also have mini programs where there are many ends, and things may not be well integrated. So if you look at one retail store offline, well, users may not find very good experience. So there is different interfaces for different functions. But if everything is merged on WOS, one mini program can solve all the problems. So merchant [ end ] that can be better integration on one back office. Second question, diversification of traffic. In the past 2 years, Douyin, Kuaishou grew fast. For us, I think, of course we do have the desire, but then for Douyin, I think they are more on the public domain. So Tmall, Taobao live streaming, they are more on public domain, less of private domain nature. And our core strength is in the [Technical Difficulty] [ private domain ]. It doesn't mean that we can't work on those small stores there. The solutions are very simple. So when users come in, how do they operate their digital assets? How do they operate their value and so on? It is not that logic at all. So I think the overall thing is not the same as our own need. So no matter whether you talk about Douyin or live streaming and so on, they are more on the public domain, not private domain. For WeChat, it is stronger in the private domain. So when live streaming e-commerce providers or operators, after they have done some adjustments, they may want -- they may realize that the private domain is of bigger value. Many brands do recognize the private domain value. So that's why they built their private domain, and they established their overall private domain solution and their digital infrastructure for the sake of their digital assets. And through WeChat and mini program, they can have their own -- they can then lead to the official website. So private domain will be their ground of operation. And to us, I think this is the area that we are strongest in, and it is the sector that we would like to seize. For cash flow, we still have CNY 3.8 billion of cash as of the 31st of December. We believe that this is very adequate. So last year, we were brave enough to make this investment. That's because our financial condition is quite healthy. I am not clear about the detailed cash flow. Perhaps Mr. Cao can elaborate. For SaaS, there is some R&D expense and so on. So -- and then the investment in M&A, there may be some outgoing investment cash flow. In the past year, we did M&A of a number of enterprises. This year, because the macro environment is not very good, so we will be -- we will adopt a wait-and-see approach. But if you look at cash flow, I think in the coming 3 years, there won't be any problem in terms of cash flow. I don't know whether Mr. Cao has anything to add.

Yes. Regarding cash flow, as Mr. Sun said, in terms of change of cash flow -- operating cash flow comparing 2021 and 2020, outflow increased, but then it is for the same reason as the increase in loss, because our strategic investment increased. Employees wages are actually cash outflow. So the additional CNY 680 million of strategic investment was cash investment and there is net cash outflow because of investment into Heading of CNY 140 million. That is not mainly because of investment. It is because Heading needs to spend some funds. They need some funds for their expenses. So that's why the operating cash flow for advertising is CNY 150 million.

Next question, Jefferies, Thomas Chong, please?

Two questions. First, lowering cost and enhancing efficiency. Just now you said that on different dimensions, you will try to achieve cost savings, and you will have more prudent M&A strategy. So in 2022, comparing with last year, how much will be the decrease in loss? Secondly, regarding number of customers and customer growth. In terms of KA, you will do more work when the economy is still not quite certain in terms of customer growth. Now you have 30% growth in SaaS. So how much will be customer growth?

Mr. Cao can take your first question. I did not hear you quite clearly just now.

Okay, Thomas, your first question is about growth guidance for 2022, is that right?

Yes, I want to know about your bottom line. In terms of loss, how much will be the loss? And then another question is paying customers -- growth in paying customers. So SaaS, 30%, right? So ARPU customer growth, how much will be ARPU and customer growth?

Okay. First question, overall profit and loss for 2022. Just now, Mr. Sun analyzed our results and business in 2022. We will spend 2 years' time from 2022 to 2023 to achieve a breakeven or actually a turnaround from loss to profit position. In 2022, this is the first year of our 2-year plan. And first of all, in terms of loss, comparing with 2021, there will be a big decrease. However, there will still be the annualization of wages. In fact in 2021, our manpower growth is fast. And for these additional employees -- well, in March, they are still with us, and they will lead to annualization of wage effects. And later on, there are measures to cut costs and improve efficiency, and we will enhance our organizational structure. So overall speaking, for 2022, I think staff costs may come down. We believe that in 2022, overall loss will be narrower. I believe that there will be a decrease by about CNY 100 million comparing with 2021. In 2023, we hope that there won't be the wage annualization effect and then burden will be lighter for us. And when COVID-19 is gone, then I think income growth -- revenue growth for 2023 will even be more optimistic than 2022. So we have in mind a 2-year plan. Your second question is about KA customer expansion for this year, right?

Yes. The share of income of KA and also for KA paying customers. What is the growth in paying customers and ARPU?

Okay. Let me try to answer. And perhaps Mr. Sun can also supplement. For our moving up-market strategy, in terms of number of KA customers, well, that may not be the most important highlight. 1 Starbucks, 1 Walmart, may be 1, but then under them, there are many, many stores and the average price is quite high. So in terms of income, our goal is that in 2022, we hope to make sure that KA customers' contribution can account for almost 50% of subscription revenue. That's our target this year. In 2021, is 36%, this ratio. For paying merchants, ARPU growth, with our implementation of moving up-market strategy, paying merchants growth rate may not be that significant, but it is definitely a stable increase. We will pay more attention to not only number of customers but quality of customers, good quality customers. Well, 1 quality KA is much more meaningful than 100 small to medium customers. So in other words, it is not only a number that we go for. So for ARPU growth, I believe that it will be about 20% to 30%. So there will be more contribution to our subscription revenue. Mr. Sun, do you have anything to add in terms of business?

Well, I don't have much to add. In the future, for a number of customers, we have to differentiate them into key customers and small to medium customers. For small to medium paying merchants number, the base is very big. So for KA, even though we increase it by 1,000, 2,000, the share -- the percentage won't change much. For KA, the average price is much higher. So for KA income growth, and also ARPU, number of customers growth, our overall estimate is quite good. For small to medium customers. Well, the target on the average price won't be too big. This year, the economy is not very good. Number of customers, growth will be steady. So basically, growth will come mainly from KA and also Smart retail. Next year for Smart Retail, it can account for 50% of subscription. This year, 40%, 42% to 43%, roughly, okay? Thank you. Because of time, we will conclude our meeting here. On behalf of the management of Weimob, 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. Thank you. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]