D-Market Elektronik Hizmetler ve Ticaret A.S. Q1 FY2024 earnings call

• Beat GMV and EBITDA guidance for the quarter.
• GMV grew 138% YOY, with inflation-adjusted growth at 43%.
• Gross contribution margin reached 12%, the highest since IPO.
• EBITDA showed an uptrend, at 2.4% of GMV unadjusted and 0.8% adjusted for inflation.
• NPS was 73, active customers totaled 12.1 million, and loyalty program had 2.6 million members.
• There were 29.3 million orders with 22% growth, and order frequency was 9.8 (up 30% YOY).
• Strategic priorities included growth of the loyalty program, increased merchant preference for HepsiJet delivery services (68% of parcels delivered, 82% next day delivery ratio), scaling of Hepsipay's payments and landing services, and expansion of off-platform business for HepsiJet and Hepsipay.

In the first quarter of 2024, Hepsiburada achieved a 138% year-on-year GMV growth, with inflation-adjusted GMV growth at 43%. The gross contribution margin improved by 150 basis points to 12%, the highest since IPO. EBITDA rose 120 basis points year-on-year to 2.4% of GMV unadjusted, and 0.8% when adjusted for inflation. The active customer base was 12.1 million, with the loyalty program 'Hepsiburada Premium' scaling to 2.6 million members. There were 29.3 million orders with 22% growth during the quarter, and order frequency over 12 months reached 9.8 (up 30% YOY). The active merchant base was nearly 102,000, and SKUs expanded by 38% to nearly 248 million.

• Expect Q2 2024 GMV growth around 75% year-on-year.
• First half GMV growth is expected to double year-on-year.
• Foresee EBITDA within the range of 1.8% to 2% of GMV in Q2.

• Challenging macroeconomic conditions.
• Cooling of consumer demand to a certain extent.
• Regulatory initiatives such as license fees, private label bans, and advertising promotion reductions that could constrain larger competitors' activities.

Q: What would be the impact on the GMV for the second quarter due to the eighth holiday moving from 3Q to 2Q?

A: The impact of the eighth holiday is already incorporated in our quarter two guidance. If the holiday were in Q3, it would likely positively impact the growth trajectory, as offline sales tend to increase during holidays while online sales are affected.

Q: What is our market share in the online retailing in Turkey we operate in the category in the market? How is our performance versus strong competition Amazon in Turkey?

A: Amazon is a very small player in Turkey. From public data, we have gained significant share growth. In electronics, we are around 32% and gained share in key categories. For non-electronics categories like home and mom and baby, we are also winning share.

Q: In what categories do you see higher slowdowns starting quarter 2024? Do you see consumers trading down or decreasing frequency?

A: Computer is a category with some deferral of demand. TV is another category, but we expect recovery with Euro Cup and Olympics demands in Q3. The trend is trading down and deferral of demand rather than significantly decreasing frequency of online shopping.

Q: When do you expect to start booking tax expenses?

A: We do not expect to pay corporate taxes in 2024 as we have tax incentives, and most likely will start paying taxes in 2026.

Q: Any plans to grow your services in developed markets including North America?

A: We don't have immediate plans to expand Hepsiburada and launch in North America, but we are expanding cross-border via integrations, such as with Walmart where our private label is sold.

Q: What is the expected incremental GMV increase due to Jumia partnership in this year?

A: The impact from the Jumia partnership will start to come next year as we complete integration and leverage their traffic; there will be nothing significant this year.

Q: Are you considering a local equity listing in Turkey?

A: We are actively exploring various options, evaluating market conditions and regulatory requirements involved in a dual listing, but no concrete decision has been made yet.

Q: What drives management's confidence that it will continue to grow share as global cross-border e-commerce platforms consider entering the Turkey's market?

A: Turkey has a competitive supplier base, affordability with our payment solutions, strong quality metrics (year-over-year NPS champion in Turkey), and we are building cross-border capabilities through partnerships like with Jumia.

Q: What are the various regulatory initiatives which may constrain the activities of the larger competitor in the market? And which are the items which have only kicked in early 2025? And are there any additional regulations to take effect later this year?

A: In 2025, license fees for larger online players, bans on private label which was a stronghold of competitors, and reductions in advertising promotions will constrain competitors. No specific additional regulations for later this year were mentioned beyond 2025 initiatives.

Q: Can you provide any medium term thoughts around free cash flow generation capacity or for the full year of 2024?

A: Free cash flow generation is driven by EBITDA growth and net working capital management. We will continue to improve free cash flow as we grow EBITDA year-over-year and manage networking capital effectively.