D-MARKET Elektronik Hizmetler ve Ticaret AS Q3 FY2023 earnings call

• Amid challenging macroeconomic environment with 61.5% yearly inflation, Hepsiburada delivered robust financials with GMV up 126% y-o-y and orders up 55% y-o-y.
• EBITDA as a percentage of GMV was 2.7% (up 690 basis points y-o-y), and surpassed Q3 guidance for GMV and EBITDA.
• Launched HepsiburadaPromise initiative focusing on next-day delivery, convenience returns, and authenticated products, partnering with a Turkish celebrity.
• Hepsiburada Premium program has over 2 million members, with Premium members' monthly order frequency rising from 1.8 to 2.6, and NPS at 81 points.
• HepsiJet expanded external customer base and doubled volume y-o-y. Hepsipay offered one-click check-out to other retailers and expanded lending capabilities off-platform.
• November campaign saw GMV double y-o-y, with 46% of GMV from credit card installment sales, and over 500 million visits to the platform.

In Q3 2023, Hepsiburada's GMV grew 126% year-on-year to TRY24.3 billion (unadjusted for inflation), with orders reaching 27 million, up 55% year-on-year. The gross contribution margin was 11.6%, and EBITDA as a percentage of GMV was 2.7% (up 690 basis points year-on-year). Hepsiburada Premium program had over 2 million members by November-end. HepsiJet expanded its external customer base, doubling customer count and volume year-on-year. Hepsipay saw off-platform expansion with a one-click check-out solution available at major Turkish retailers' online check-outs. Revenue from retail and marketplace operations comprised 87% of total revenue, with retail revenue up 50% and marketplace revenue up 61% year-on-year. Delivery service revenue rose 43%, and other revenue (including advertising, fulfillment, and loyalty program fees) grew 116% year-on-year.

• Expect GMV growth in Q4 2023 within 93%-95% y-o-y and EBITDA as a percentage of GMV within 0.5%-1%.
• Full-year 2023 unadjusted GMV expected to double y-o-y, and EBITDA as a percentage of GMV expected to be 1.5%.

• Macro-economic challenges including high inflation and rising interest rates.
• VAT increase impact in Q3 not repeating in Q4, affecting GMV growth expectations.
• Competition authority investigation regarding price recommendations for merchants, with uncertainty around potential negative results.

Q: What drives growth deceleration in Q4 2023 compared to third quarter 2023?

A: Nilhan Onal Gökçetekin cited base effect from strong Q4 2022, VAT change impact in Q3 not repeating, and rising interest rates affecting demand in Turkish markets.

Q: Any thoughts on possible local listings to improve the liquidity of shares?

A: Nilhan Onal Gökçetekin mentioned evaluating a possible local listing on Istanbul Stock Exchange, with pros and cons being investigated.

Q: Could you provide color on September sales and how the Legendary November event was relative to your expectations?

A: Nilhan Onal Gökçetekin stated Legendary November was almost spot on versus expectations, with Premium membership and frequency increases, strong non-electronic categories, and marketing sessions aligning with plans.

Q: Digital orders represented a significant portion of order growth. Could you expand on what these orders relate to and would their contribution to revenue growth be similar?

A: Nilhan Onal Gökçetekin said digital orders drive frequency and loyalty but are immaterial to GMV growth, with no immediate similar contribution to revenue growth.

Q: What are your expectations regarding consumer demand in 2024 considering recent interest hikes?

A: Nilhan Onal Gökçetekin noted while interest rate increases may affect demand, the company's strategy including affordable shopping options and e-com's suitability in the environment should help.

Q: Hepsi Premium reached 2 million members. Could you speak a bit about any targets for the program? Is this program breakeven yet on a consolidated basis?

A: Nilhan Onal Gökçetekin said they are not chasing a specific member number, focusing on sustainable profitability, and details on premium profitability are not shared at a consolidated segment level.

Q: Could you provide color on the gross contribution margin improvement and competition authority investigation?

A: Seçkin Köseoglu said gross contribution margin improvement was due to re-discount impact on inventory and 3P GMV mix towards higher margin products; Nilhan Onal Gökçetekin mentioned competition authority investigation on price recommendations, with confidence in a positive outcome even in worst case.