Smart Share Global Limited Q3 FY2023 earnings call

• Network expansion: Added nearly 80,000 new POIs in the third quarter of 2023, with restaurants, entertainment, and shopping hubs leading the growth. Cumulative registered user base expanded by 16.4 million to reach 379 million, a 17% year-over-year increase.
• Profitability recovery: Non-GAAP net income reached RMB55.2 million for the third quarter, showing an increasing trend compared to previous quarters.
• Cost optimization: Sales and marketing expenses decreased due to new contractual arrangements with network partners. Logistics and warehousing were optimized, reducing warehousing expense as a percentage of revenue. Quality assurance measures for cabinets and power banks were improved to reduce repairment costs.
• Model balance: Direct model focuses on high-yielding locations in higher-tier cities and KAs, while network partner model focuses on lower-tier cities and complements the direct model's coverage. Network partner model constitutes approximately 65.5% of POIs as of the third quarter.

For the third quarter of 2023, revenues were RMB613.5 million. Mobile device charging revenues, which account for 92% of total revenues, were RMB564.2 million. Revenues from the direct model were RMB284.2 million, down 36.4% year-on-year, primarily due to a decrease in the number of POIs operated through the direct model. Revenues from the network partner model were RMB280 million, down 22.7% year-on-year, mainly because of the change in contractual arrangement with network partners. Other revenues, accounting for 8% of total revenues, were RMB49.3 million, up from RMB5.8 million in the same period last year, driven by new business initiatives. Cost of revenues was RMB214.8 million, up 71.1% year-on-year, mainly due to the increase in sales of cabinets and power banks under the new contractual arrangement with network partners.

• Fourth quarter GMV: GMV increased by 30% year-over-year during October and 32% in the first three weeks of November, though consumption power remains soft. - Model impact: The rebalance of POI based on the two models will positively benefit margins. Under the network partner model with updated contractual arrangement, long-term mobile device charging solution revenue is generated, and the reduction in direct model will lower operating expenses, positively affecting long-term margins.

Q: Can management clarify how exactly the rebalance between the network partner and direct models is done and what is the right balance to think about in the future?

A: Thanks for the question. As of the third quarter of this year, 65.5% of our POIs are under the network partner model, a significant increase from the same time last year. The direct model's advantages in rapid execution and ability to acquire KA remain clear, and it will focus on key regions and POI types in higher-tier cities and KAs. The balance between the two is still a work in progress with no specific targets set for either model, but the contribution of the network partner model is expected to continue increasing in the near future.

Q: Can management give more insight on the fourth quarter outlook, and how the changing ways between the two models will impact the company's performance in the future?

A: We are still observing the fourth quarter, but consumption is a bit below expectations. GMV increased by 30% year-over-year during October and 32% in the first three weeks of November with signs of gradual improvement. The general rebalance of POI based on the two models will positively benefit our margins. Under the network partner model with updated contractual arrangement, long-term mobile device charging solution revenue is generated, and the reduction in direct model will lower operating expenses, both positively affecting long-term margins in the future.

Q: How much of the other revenue is driven by the advertising portion and how much by new business initiatives? And can management share a bit on what initiatives are actively being explored by the company?

A: Advertising revenue grows as the registered user base grows and advertising efficiency is improved. New initiatives' contribution has increased a lot this quarter, but they are still in the early stage. For new initiatives, the company will identify large industries with proven demands and unit economics, and explore opportunities that leverage its distribution capability and IoT foundation to unlock new growth avenues.