D-Market Elektronik Hizmetler ve Ticaret A.S. Q2 FY2024 earnings call

• Loyalty Program: Hepsiburada Premium reached 3 million subscribers, with an NPS of 84, the highest among Turkish e-commerce loyalty programs. Premium members have a 36% higher order frequency. BluTV (acquired by Warner Bros Discovery) enriches premium program benefits.
• Logistics (HepsiJet): Delivered 73% of parcels in Q2, up 6.8 percentage points year-on-year. 68% of oversized parcels were via HepsiJet XLarge, up 8.9 percentage points. Added 7 electric vans in Q2, targeting 50 by year-end. Published sustainability report.
• Affordability: Hepsipay's BNPL volume tripled year-on-year in Q2. Affordability solutions' GMV penetration rose to 8.1% in Q2. Wallet pay grossed $16.7 million, covering 19.5 million store cards by end of August, with auto-top-up feature launched.
• Off-Platform: HepsiJet doubled external customer volume in Q2, with off-platform share reaching nearly 36%. Hepsipay's one-click checkout integrated with 50 leading retailers in Turkey, tripling payment volume in Q2.

In the second quarter of 2024, Hepsiburada recorded 36.7 million orders with a 33% year-on-year growth. GMV doubled in the first half of 2024 compared to the previous year. EBITDA was 2.4% of GMV unadjusted for inflation, and nearly 1% when adjusted for inflation. The loyalty program (Hepsiburada Premium) reached 3 million subscribers. HepsiJet delivered 73% of total parcels in Q2, with 68% of oversized parcels via HepsiJet XLarge. Affordability solutions' GMV penetration rose to 8.1% in Q2. The platform had 264 million SKUs from around 101,000 active merchants. Revenue-wise, Q2 revenue was nearly flat, but first half revenue grew 20.5%. Gross contribution margin was 12% in Q2, the highest since IPO.

• Q3 2024 expects GMV growth within the range of 70% to 75% year-on-year. Anticipates EBITDA of around 2.2% of GMV adjusted for inflation. First half of 2024 delivered the highest free cash flow since IPO.

• Macroeconomic headwinds and tight credit environment due to high interest rates. Impact of interest rate changes on financing costs. Potential impact of cross-border tax changes not yet fully realized. Competition in the market.

Q: Your GMV guidance implies a bigger premium to inflation in Q3 than in Q2. What's driving that?

A: Drivers include strategic initiatives like Premium, HepsiJet's off-platform growth, improvements in ad and premium revenues, and back-to-school seasonality.

Q: What was the impact of the second quarter holidays on GMV?

A: Roughly an additional 6% real growth, bringing real growth to 10%.

Q: For the second half of 2024, would you expect to return to positive free cash flow like in 2023?

A: Yes, confident of full-year positive free cash flow, focusing on improving EBITDA and managing working capital.

Q: Shifting GMV towards Marketplace, 3P. Is that a seasonal shift or is it a strategy?

A: Strategic shift towards non-electronics via premium and loyalty programs, with slowdown in electronics market also contributing.

Q: As inflation subside, how will IAS29 accounting impacts evolve?

A: Unadjusted revenue growth will be lower, but adjusted real growth unchanged. EBITDA positively impacted by lower inventory costs. FCF impact limited but EBITDA improvement will positively affect FCF.

Q: Measures being taken to address rise in finance costs due to higher rates?

A: Adjusted credit card policy, increased affordability solutions to manage financing costs.

Q: Comment on the consumer environment in Turkey?

A: Macro environment has high interest rates tightening credit, but demand for Hepsiburada's solutions remains strong, with seasonality and innovation providing tailwinds.

Q: Guidance seems optimistic vs inflation and consumption slowdown. Explain revenue drivers and resilience?

A: Driven by back-to-school period, improved 1P business, flourishing ads business, and growing premium user base.

Q: Shift in consumer behavior due to cross-border taxes changed in August 2024?

A: Too early to tell, but minimal global inbound share suggests potential tailwind to Hepsiburada.

Q: Pressure on consumer or trading down, tougher competition in second half?

A: Credit environment tough, but strategic measures (affordability, logistics expansion) expected to drive strong performance.

Q: Expect to get to bottom line profitability in second half?

A: EBITDA will continue to improve, but FX gains last year hard to predict, so bottom line profitability premature to comment.

Q: Limits to funding capacity for affordability solutions and Hepsi funds? Plan on asset-backed insurances?

A: No issues with funding, will initiate second tranche of asset-backed security program.