Mogu, Inc. Q3 FY2020 earnings call

• LVB business is a key growth driver with strong momentum, GMV up 99.5% y-o-y, accounting for 53% of total GMV. Daily live broadcast hours in December 2019 increased to 3,800 from 3,400 in September, and average LVB MAUs increased 133% y-o-y.
• Cultivated and empowered KOLs and LVB hosts: recruited nearly 5,000 new hosts, new-KOL incubation programs showed results, and added 2,000 new supply chain vendors.
• Enriched live streaming e-commerce business: expanded product categories, price ranges, brand portfolio, and innovative tools; grew short video content catalog to increase user engagement during off-peak hours.
• Responded to COVID-19: expanded brand partners, optimized systems and processes, and remains confident in long-term growth prospects with the outbreak creating opportunities to strengthen LVB business' influence on e-commerce growth.

MOGU's overall GMV grew 8% year-over-year in the third quarter. The LVB business' GMV increased 99.5% year-over-year to RMB 3.4 billion in the third quarter of fiscal year 2020, accounting for 53% of the total GMV. Total revenue was RMB 269.5 million, a decrease of 26.6% year-over-year. Commission revenue decreased 19.6% year-over-year to RMB 141.2 million, and marketing revenue decreased by roughly 45% year-over-year to RMB 72.5 million. Cost of revenue was relatively flat, sales and marketing expenses increased 2.2%, R&D expenses decreased 42.3%, general and administrative expenses decreased 15%, and amortization of intangible assets increased 64%. Net loss attributable to MOGU ordinary shareholders was RMB 1,634.5 million compared to RMB 42.2 million in the same period of fiscal year 2019.

• The challenging market environment due to COVID-19 may impact performance in the near term. - Remains confident in longer-term growth prospects of the business. - Believes the outbreak will create more opportunities to strengthen the social influence of KOL-centered LVB business on e-commerce sector growth.

• Impacted by COVID-19 in February, most impact seen then. - Supply side affected due to delayed resumption of work of factories and large-scale offline markets. - Logistics challenged as delivery services face issues like customers' safety concerns and neighborhood restrictions on delivery guys. - Shortage of spring collection supply due to brands and offline suppliers' situation.

Q: Regarding the impact from the COVID-19, which area you see the most impact? Is it on the supply side or the live video broadcast host available hours or the logistics? When do you expect your business will recover to normal state? Do you see a decrease in your pool of live video broadcast host or increase due to people stay for an extended period of time at home?

A: [Foreign Language] Okay. For the first question, yes, there is an impact to our business. The news came out in late January, and we see the most impact in February. Initially, early February, our live streaming hosts couldn’t come back to their studio. They are required – they were required to quarantine themselves at home. Later on, when our hosts start to come back, we find there is a bottleneck at supply side, mainly due to the extended holiday has basically postponed the resumption of work of factory and large-scale offline market. As of now, in early March, most of our hosts has come back to work. And most of the factory has resumed working now, but the delivery services has become a challenge due to, first of all, some of our customers are afraid of the safety issue as package being delivered from other cities. Also, there’s a limitation on the delivery services, as most of the neighborhood are asking the delivery guy to leave their parcel outside the gate after the main gate. So – but the same situation has also impacted brand and suppliers, and many of the brands and offline supplier have basically realized the spring collection – the sales of spring collection will be heavily impacted. Regarding recovery, on our platform, we are seeing – the data we’re seeing shows that DAU and also active user engagement has covered pretty well, and actually, we are seeing very good data coming regarding the user engagement. So that’s on the demand side. But the challenge remains on the supply side. Basically, we are still experiencing some bottleneck on the offline suppliers and also brand partners I think in China, the situation is largely – has been largely contained, although there is – and the outbreak abroad is an evolving situation. But in China, the situation has been largely contained, and we expect business will go back to normal pretty quickly. Basically, we’re seeing pretty encouraging development on the demand and also the supply of our live video broadcast host. We are seeing pretty stable number of hosts coming back to work. So basically, our pool of live streaming host has not reduced, but we are not seeing a rapid growth in the pool of live streaming hosts, mainly due to, again, as I said, on the supply side, we are seeing limited extra supply from brands and suppliers.

Q: Basically, my question is, when you see a challenge or constraint on the supply side, but at the same time, your LVB hosts coming back and they are engaging with their fans, are you – do you expect to see a decrease in kind of user engagement, in longer term, if you continue to have supply side constraint?

A: [Foreign Language] Okay. When we are saying there’s a constraint on the supply side, we’re not saying there’s no supply, just not abundant supply, so we still have quite a lot of supply to offer to our KOL. We mainly implemented two strategy in the past 1.5 months. Number one, expand our product category, especially cosmetics, because cosmetic product has not been impacted as heavily as apparel, so we are seeing contribution from our cosmetic sale has expanded. Second, we are – we have very successfully expanded our brand portfolio. As you guys know, we are – brands were not our basic core supply in the past. Right now, the epidemic really impacted the traditional apparel brand in China when they have very limited offline sales. So they have a lot of inventory. So actually, it’s opportunity for us to kind of penetrate into the brand live streaming e-commerce sale. So our key strategy this year is, expand our product category, especially cosmetics, because cosmetic product has not been impacted as heavily as apparel, so we are seeing contribution from our cosmetic sale has expanded. Second, we are – we have very successfully expanded our brand portfolio. As you guys know, we are – brands were not our basic core supply in the past. Right now, the epidemic really impacted the traditional apparel brand in China when they have very limited offline sales. So they have a lot of inventory. So actually, it’s opportunity for us to kind of penetrate into the brand live streaming e-commerce sale. So our key strategy this year is, expand our brand portfolio, expand our price ranges and expand our product categories. In the past 1.5 months, we have worked with more than 500 new brand partners. So in the past LVB host, they were reluctant to work with brand due to the higher price range, but now this is the opportunity because of the limited supply from the traditional, basically, factory supplier side. They have to rely on us more in order to work with brand partner to get a sufficient supply for the shows.