Q3 2019 Earnings Call
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Thank you and everyone and thank you for joining us today into earnings releases distributor earlier and is available.
And just your Dockendorf.
No.
On the calls from people do I missed the jump.
<unk> Chief Executive Officer entity that he was vice president strategy.
Well I will review operation.
Hello.
I will discuss financial it won't be available to answer your questions during acuity session doubtful.
It's always again I'd like to remind you that its conference contains forward looking statements.
Oh section 21 of the U.S. Securities Exchange Act pretty cool.
And a decline in the U.S. private Securities Litigation Reform Act.
These forward looking statements caveated by the technology, such as well expect anticipate.
But.
Such statements are based on what management.
Patients and marketing operating condition and really events involve.
70, and other factors, all which are difficult to predict and many of which I'll be on the company's control, which may cause the company actual results performance or achievements to differ materially from those into forward looking statement.
Well the information regarding these and other risks.
Oh, I guess I'd say the in the company's volumes with the U.S. Securities and Exchange Commission. The company does not undertake any obligation to update any forward looking statements. As a result, you as a nation future events or otherwise, except as required under applicable law.
Now, it's my pleasure to introduce chairman and Chief Executive Officer Mr. <unk>.
Okay.
Thanks Terry.
Secondly, walk before joining us on his call.
Well trials.
Four years old block model.
Yes. It is still feels like yesterday, when we first started with only a handful of people.
Today, we have over 5000 employees 500 to 360 536 million and active buyers.
130 minutes I may use for the quarter ending September Thirtyth 2000 Lucky.
That's true to support a whole users merchants and apart from those who continue to generate robust business the momentum.
Our last 12 months' true V will walk through 44% year on year to exceed on the 840 Vienna.
Thinking back to where we're starting to company, we envisioned an old themselves.
I would put to users ever trend you need first.
Warmed up quite a provider equal opportunities and empower all for better life.
The war in the mobile your ROE, we set out to the beauty <unk> platform that connects people and uppermost trust in us and stuff can you mean.
We're doing this in several ways.
First.
I see user engagement second supporter uses of freedom to choose.
Got to serve the house IP rights protection.
First the Investor you usually engagement the most instructive way to beauty trust with our users is to encourage them to try try new products and a new features all possible.
We make discretionary sales and marketing investments to reduce the various forward uses to buy gotten that do have always comes out to come visit and to try new products.
You are new product categories all powerful.
I work has been a subsidiary program data, we have launched a wrong.
June 18th shopping festival is a great example.
The usually response has been so positive stuff together with our merchants will continue to makes a pro become available.
Always to single day.
Well just have doll is to change people's perception of PD.
Don't just to sell apples, but it will also sell authentic apply phones.
During the first 11 days it was invepar were sold over 400000, leaches stifle models to consumers who bought.
Otherwise sought to twice about them, making that purchase on PD.
Similarly on singles day.
So over 1000 cars when emergent don't match the brands like Linehaul wall in the first 60 minutes.
With the most off the buyers mainly coming from tier three to cheer five cities.
Our investments in user engagement no longer how close to attract new users more importantly, it allows us to quickly Butte Munch here.
Typically it takes time for users to gay enough confidence from the initial purchase to develop a broader sustainable shopping habits, all that ecommerce possible.
Our peers worldwide have gone through a similar process of educating their users and the beauty in gear consumption habits to get to their code to scale.
The difference for US is data we don't have the same luxury uptime.
By reducing friction from our users we encourage them to buy across more categories.
I would point to in their life cycle, which means we start addressing.
Agreed to share of wallet schuldener, while waiting for you in Richardson.
We're on a steady off their shopping preferences.
We would have observed is that users don't simply leave.
Leave opted the body I just caught Brad.
Oh platform, rather they stick or wrong to explore all other a chart two products.
Offer and to be Tom repeat buyers as such.
How do you spend a productive use there has been growing rapidly for the past few mall fall past few quarters.
And is now closed to RMB 1600.
Well users well being our platform <unk>, we see that they are capable of expanding in a few thousands of RMB per year and this level continues to increase.
Our tier one users already spending well over on the 5000 based all annualized 2019 QC responded.
Moreover, taking into account the social nature of the shopping journey, our plus wall.
These are also not call.
If not well one users something to buy now buying new categories positive experiences go to for the disseminated across the uses social networks.
And the other users endorsement are likely to help you to trust and encourage others to shop on beauty.
Ultimately our goal is that whenever you're going to think about a buying something.
I mean, two P.D. would it be second nature.
Second.
Supporter uses freedom to choose.
The provided you quantify opportunities for merchants to sell at a user to purchase.
Our user base comprises a wider spectrum across different social and economic standing.
Same user, but how strong preferences for important <unk> branded goods in categories, such as cosmetics mother, and infant care wireless preferring to buy the most economical option for how sort of goods.
Therefore, we continue to strengthen our ability to source a wide array of goods imprudent, rather and imported items based on users.
At the same time, we're committed to give a equal opportunities to all merchants and a bread big or small.
We believe the decision, though which merchants products to view and to purchase should've been made by our users themselves. Rather then it'd be resolved top of certain platforms actions.
Indeed, as we continue to grow we see more in a more users voting for us with their wallet with many merchants following.
Following suit as a weakened constitute an attractive source of growth.
From day, one Pandora has focused on delivering value for money goods 12 users by Edward between demand and touching out all necessary intermediates Rouge.
By keeping our <unk> commissions fees low.
We're also hockey nurture a new brands men out, which have helped us pretty even better value chooses to tailor made a products or prices I presented in a straightforward Amanda and it uses I've given the option to purchase authentic quality goods across all categories at all.
Price ranges.
Well also unlocking additional sources of quality products, while fighting poverty by training and education farmers in the impoverished counties are hard to sell to produce a lot.
Double 11, this year was especially for us not because of some one day sales target, but because it was a day we lunch hour.
Yeah.
Actual work in normal.
Chock full poverty alleviation course, being long OLED Chong blocked what autonomous district, the reason that Providence.
Over the course, often that is six months 60 students ages 20 to 50 from trying to villages in the district will start from scratch to learn e-commerce religious skills and ultimately opened their own stores on <unk>.
So these farmers will go from sitting on the sidelines.
To be active participants our platform to share the list raw foods.
Off their labor directly with or Chinese online shoppers.
Rather than virtual skyscrapers, where beauty real capabilities for the next generation of farmers <unk> a farmer merchants for instance, the agriculture goods Festival, we how dollar platform in August generated 110 billion orders for 20000 to farmers out of merchant.
Across 500, agriculture areas driving meaningful volumes to small scale farmers.
Lastly, you House IP rights protection.
Well I took a hit to setting the trusted users, placing on I touching our platform quality control we launched.
Ran a cat program in the first quarter enough this year, covering what falls into well known brands with designed a customized the attack concentrated class leveraging technology.
We studied the platforms a study the patents offering infringing activities against a branded products and the tailor made hundreds of his rules to screening.
Every product and listing application for IP infringement.
97%, often suspected infringing products listings.
Intercepted and a block the before they reach consumers were also design over 6000, the screen the models to come through existing product testing our platform for specific concentrated called box suitable shutting. These crew listing rules in upholstery listening school.
Any models continue slinky would find themselves to identify and lock in you. It's small taishan tactics attempting to buy infringing merchants at the same time.
Closely working with Red owners merchants consumers and the law enforcement agencies to drive lofting on a sustainable results.
More than 12000, the brand owners have registered their Rptwod rights, our IP protection program.
We have cooperative with law enforcement agencies across China to port counterfeiters behind bars or the open platform.
I totally reaching out to all stakeholders, and it's very innovative and a collaborative ways to create a safe and a clean shopping around for consumers.
For years after we started to pretty.
Were proud off the fact that would make singularly focused on developing a vast untapped have you commerce experience for users.
And we are dedicated to offer equal opportunities fall.
We plan to continue to invest your user engagement to flow to the trust so to have placing us and a watch you all to join US on this journey.
Now, let me turn over to David to go to go through other financial results for this quarter.
David Please.
Thank you call and Hello, everyone.
We saw strong growth across our operational metrics in the third quarter of 2019 in particular with our annual active buyer and value growth maintaining good momentum on par with a second quarter.
Our annual active buyers for the last 12 months ending September Thirtyth 2019 grew by 53 million compared to our new active buyers at the end of last quarter to reach 576 million.
And our menu grew by 64 million from the prior quarter to reach 430 million.
User engagement has been steadily increasing which should we be bodes well for our long term GMB growth at least new users mature.
Our last call bunch heavy group, 144% year on year to reached RMB 840 billion.
Which was in line with our expectation considering that's what the seasonally lower quarter and on the back of our successful June 18th campaign.
We continue our continued Jimmy increase was driven by the sustained growth of our annual spending per active buyer, which rose 75% year on year to reach RMB 1500 67.
The increase in its average number should be considered in the context of the rapid increasing our active buyer base over the past few quarters.
Highlights that our value proposition is resonating strongly with users who are standing on an increasing their spending over time as they are finding more and more that appeal to their needs on our platform.
I would also note that this growth momentum is all the more encouraging you like to prolong pressure exerted by dominant platform called merchants to think side.
For the last 12 months.
Pressure on Brexit merchants to take sites has intensified.
And over 1000, well known brands flagship stores have been affected on our platform.
With a total number exceeding 10000.
For for your merchants to take sides any midstream case, leveraging technology to do so does that make it easier for them to do business. It makes it harder and ultimately hurt the consumers.
Hi, restricting I suppose to users dominant problems can charge higher fees to merchants will be sending your voluntarily dependent on those properties where traffic.
These fees ultimately get passed on to consumers and pricing and overtime. These dominant problems will lose incentive to provide a better user experience hurting consumers both in the near term and your long term.
There's such problems they sporting their market position against merchants for a long period, you been resolved to enforce retrenchment workers at these businesses grow take a hit.
We know that you did not you'd be for merchants and obviously, both the growth of their businesses and our problem will happen even faster if there were given the freedom to choose where to operate.
We cannot do much the stocks such behavior, but we believe that I suppose we put our users first we're continuing to progress together and we're partnering with our merchants is soldier through any obstacles we.
We do not am I, making short some concessions to take on take rate is that pay so paves the way for better long term growth.
Notwithstanding these anti competitive measures which didn't affect.
We continue to deliver solid topline growth.
Total revenue grew a 123% year on year to reach RMB 7.5 billion with the increased primarily due to the growth of our online marketing services.
Oh and marketing services revenue was RMB 6.7 billion this quarter.
The suiting, 89% of our total revenues.
This is up 126% compared to the same period last year.
And is driven by rising demand for advertising product at the user traffic and Jim beyond our properties continue to expand rapidly.
We have been focusing on making it easier for merchants to get started.
With advertising our platform.
Through our merchant properly interface design or by having more training courses online and person to provide our merchant across different industries with color supports.
But felt look on your products, we will also incentivize merchants or tried them.
At the same time, we continue to innovate around our user experience.
For example, our new game open up more browsing opportunities for our users to discovery products, serving as powerful incremental sources for free traffic, where our merchants.
We always making a balanced approach when they cost of monetization of trapping our platform.
As we believe that eating the growth of promising good quality merchants is likely.
To be more beneficial to our long term value rather than trying to maximize shorts and game.
The remainder of a revenues came from transaction services.
Our professional services revenue for the quarter grew by 111% year on year to reach RMB 802.5 million.
We continue to incentivize merchants this quarter to provide better service to users. That's we know that that's beneficial to our problems growth longer term.
To give an example, local service we have seen that merchants will offer free returns tend to have a 56% lower dispute rate and better customers reading.
Higher user satisfaction tries positive word of mouth and repeat purchases on our platform.
The better customer ratings also helped the merchants to get greater exposure organically.
Moving on to call.
Our total cost of revenue increased from RMB 775 million in the same period last year to RMB 1.8 billion this quarter.
[noise] this translates to a gross margin of 76% this quarter as compared to 76 or 7% a year ago.
The lower gross margin this quarter as compared to the prior yet reflect our investments and network infrastructure and merchant support services to support our rapidly growing operation.
Total operating expenses this quarter were 8.5 billion RMB as compared to 3.9 billion RMB that same period last year.
I'll start with their marketing expenses this quarter increased to RMB 6.9 billion as we continue to invest to build off the momentum from our efforts in the second quarter.
Many of these are starting to hear about the RMB 10 doing a subsidy campaign during the second quarter and.
And when.
It was a considerable amount of traffic and sharing generated by this campaign, reflecting user satisfaction with and recognition of the differentiated experience is compelling offer.
As we worked with our merchants to continue our investment in this program. This quarter. So help prepare the ground for anniversary South in early October .
As for use every them any time, we do not manage our business towards specific quarterly financial target, that's our probably still.
Early stage of growth no competitive industry.
We need to make the right investment in the early years to set up a strong foundation for future growth.
And this investment in our users is one such example.
Not only our way investing to grow our user base. We're also investing to increase our mindshare with these users such that it come to trust the platform and treat tend to fall shopping destination.
This is a process that does not happen overnight.
And so in evaluating the returns on investment we keep in mind the potential lifetime value of the user rather than expect any immediate return to occurred in the same quarter as the investment.
On a non-GAAP basis, our south at marketing expense as a percentage of our revenue was 89%.
Your next few quarters, we expect us to still be fairly dynamic, but we would again remind everyone I would do not the internal budgets around a target a sales and marketing to revenue ratio, but rather we focus on expect the ROI of our investments.
Our general administrative expenses this quarter were RMB 436.6 million or 3% of our revenue on a non-GAAP basis.
This marks an increase of 43% year on year as we incurred expenses relating to our initiatives with local government to alleviate rural properties.
One example, especially initiative as total farms.
Agriculture is one of the hallmarks of our platform.
And the door robots initiative aims to improve the entire aquaculture supply chain fund the moment, the farmers decided what to so.
To the moment approaches reaches our users hands.
To complete our discussion I expenses, our R&D expenses were RMB 1.1 billion. This quarter, a significant increase from last year and a step up on the past quarters as we added more headcount in particular hiring more expense I would have them engineers and spending more R&D related to cost service.
The salary our growth.
On a non-GAAP basis, R&D expenses as a percentage our revenue was 12%.
Operating loss this quarter came to RMB 2.8 billion compared with a lot of RMB 1.3 billion that same period last year.
non-GAAP operating loss was RMB 2.1 billion compared with a loss of RMB 790 million in the same period last year.
Net loss attributable to ordinary shareholders was RMB 2.3 billion.
There was not thoughts of RMB 1.1 billion, a same quarter last year.
Basic and diluted net loss per ATM or I'd be $2.
Care to an Oscar Adss RMB, one thing to doing the same period last year.
non-GAAP net loss attributable to ordinary shareholders were RMB 1.7 billion.
Pair with net loss of RMB 619 million getting the same quarter last year.
non-GAAP basic and diluted net loss per adss, where I'd be 1.44 compared to a net loss per ATM program be 0.68 for the same quarter of 2018.
That completes the profit and loss payment for the third quarter.
Net cash flow provided by operating activities for this quarter was RMB 2.6 billion compared with RMB 1.6, getting the same quarter last year, primarily due to an increase in our online marketing services revenue.
We also raised 1 billion U.S. dollar something additional capital through our convertible senior notes offering in late September .
We issue that zero percent coupon convertible notes due in 2024, which as well received by the market. We view this race as a way to give us more flexibility young our future investment plan.
As of September Thirtyth 2019, the company had a strong balance sheet was RMB 34.4 billion in cash cash equivalents and restricted cash.
Excluding restricted cash we had RMB 15.7 billion cash and cash equivalent.
In addition, we had RMB 24.6 billion in short term investments, bringing our total cash available to RMB 40.3 billion.
So while we continue to invest their sales and marketing. We also maintained a healthy cash position with positive operating cash flow. This puts us in that position to make necessary investments by loan growth.
Further our competitive advantage.
This concludes our prepared remarks.
And operator, we're now ready for questions [noise].
Thank you, ladies and gentlemen, who will begin to question answer session and if we wish to ask a question. Please press star one on your telephone and weight training to be an analyst.
The Kathy and request this basketball Heskey.
Please limit your questions.
Yourselves to one question at a time.
Once again, please best Taiwan and your telephone keypad.
Your first question comes from the line of Glace Chen of Morgan Stanley . Please go ahead.
[noise].
Thank you. Thank you for taking my question I didn't see nice growth.
Hi were seen sale.
Oh.
In the quarter.
Oh, I'm interested to know what kind of.
Oh, good upper teens.
<unk>.
Yes, it seems from south of I think it, particularly if any public category.
Possibly TV to promote the category. Thank you.
Take rates for the question apologies if I didn't catch all of your question you are coming in and out of it but I believe the question was around south to marketing and also in terms of product categories that we are focused on.
As we have communicated to the investors.
In the past as has been no change in how we think about sales and marketing.
Our focus is still very much on first growing our user engagement and secondly, our user base.
So to the extent, we can grow faster while meeting our ROI hurdle, we would choose to do so and that means we can reach a wider user base at an even earlier stage and start converting them into a loyal TV users over time.
How exactly can we improve the ROI I think it depends on how we can be improved our user engagement and whether the things that you will note that we are doing is to continue to you reached a product categories on our platform and we are leveraging promotional events and coupon.
We encourage our to our users to explore new product that we bring onto the platform and to enhance their experiences.
And to build trust through that process.
What do I mean by that if it's our user base continue to expand the type of product that they the men are going to continue to Barry and whether the things that we have noted as an example.
Is that they are certain demand for rather than you recorded a product I'm a platform from our users and this particular truly categories, such as cosmetics and more than using care.
And it is important we let our users understand and experience first hand, not the product that they can procure in these categories on cross form a genuine our high quality and our own competitively valued and this is why we have been quite successful with our RMB 10 billion subsidy program, which as we have.
Communicate that we are.
Paying out a billion dollar ourselves by instead, we are leveraging marketing resources that were watching with merchants to address.
At providing this program through our investors and by encouraging them to try these categories, which they may not have otherwise do allows them to experience first hand, and develop a trust our without proper much earlier.
I would also note that our older cohorts are not already spending a few thousand of RMB <unk> on the average and as Colin mentioned, our tier one users today are already spending well over 5000 RMB based on annualized 2019 Q3 spending.
That is a testament of the fact that they're coming to our platform and our spending with higher frequency and buying product <unk> higher.
Yes.
Operator next question please.
Thank you next question comes in I know at <unk>.
Citigroup.
Please go ahead.
Hi, I'm. Thank you good evening management. Thanks for taking my questions I have a question regarding some of the promotions. So just wondering.
If you can Chevy bus Oh, what other users that brought to the iPhone. During the June 18, and also the single stage and I'd say the younger generation Oh from first and second tier cities on the what's your city and E. T set a onetime buyers with after that if they stay.
How active stay on on purchasing the items from your platform.
And then just follow up a bit how should we think about the lower monetization rate ended the quarter and I translate into the fourth quarter. Thank you.
Thank you Lisa I'm. So the question was regarding the buyers profile these promotion programs.
I'm, calling how little too we sold during the same goes.
In November 11th you made 11 days, we so.
Over 400000, iPhone and the bias for these new iPhone models, 80% of a more buyers.
I'm going to 1980 and the nice United's so yes. These are younger generations younger users on our platform.
And in terms of your question on the take rate.
As I mentioned earlier as a platform our focus today is actually on a user engagement and it's important that where you make sure that the merchants that we are bringing onto a pop on have an opportunity.
Two also showcased themselves to all the users and letting our users have the opportunity to explore the different possibilities. So we're continuing to provide a wheel.
Our priority is actually to seek a balance between growth of online marketing take rate versus the overall scaled the possible.
Okay. Thank you.
Thank you. My next question just from that I know something must Chung of Jefferies. Please go ahead.
Hi out would you have an evening bank management Politicking my questions.
A question about our strategy.
How should we think about Vicki.
He on who said well.
On the nation I understand that.
More on Ustwo point, we we may not at okay that much.
We saw on monetization so just wanted to see our pipe.
Your next year and also regarding our GMB put buyer.
Yeah.
Good momentum, a and then well that dynamic between <unk> and all that be Quinsey Uh huh.
Ah yes.
Yes.
Yes. Thank you.
Thank you for the question incurrence of our company's growth strategy.
I would say actually it is not so much growth versus monetization by rather engagement. So if you look at and I think it's good to focus our annual spending per active buyer as we mentioned that annual spending per active buyer for the quarter for the last 12 month end use.
Temper, it's 1500 67 in RMB.
In that context, we also.
Referenced the tier one buyers for the Annualizing, they're spending in the third quarter is well over a 5000 RMB.
We actually think the 1500 67 average spending per user is a very healthy number because that number and used to be put in context of the absolute number of buyer at a in the past couple of quarters in Q3 for example.
We added the most number of active buyers you move lost seven quarters.
So.
And the reason why we think it is important to actually think about user engagement as opposed to growing the absolute side, it's because of the social or the team purchased nature of our platform.
As we continue to activate our users on pop into increased engagement to explore more and this is why promotional programs like a billion dollar sounds to be continues to be so you impactful is as users learn more about product in futures on hot form has put experiences and feel free to trust with our platform. They also tend to.
Share more so we actually see the growth in our user base more as a deprivation or natural offshoots of users having great experiences are possible and we are convinced that by having a strong user engagement. Good user experiences monetization will follow so I would say that interest the four.
You know a future suddenly for next year, we're going to continue to prioritize user engagement I also increased users frequency on platform increased the probably the.
A number of product categories.
They purchase things for a platform and to increase our while this year with these users and from there we believe the not calling back will drive for user base growth.
So I Wanna add a little bit.
Today. These officer is constantly received questions like yours.
So I really want to emphasize that when a rights when they wrote in the letters to shareholders. We focus on the long term I really mean it.
And when we talk about growth strategy and the tradeoffs to bitching World data monetization I think if you read through my <expletive> letter to shareholders.
In my mind, there is no.
Trade off between growth and monetization, we really don't think it's a tradeoff will always think the money was that it is a investments or were always looking at long term investment opportunities, where we can spend them.
On the money when there is opportunity we should spend our money aggressively we shouldn't put our money into the P. bet.
So with that said.
Well, we're all the often.
In a seemingly ironic situation, where we're numbers the.
Got a beautiful.
It's usually means we did in the.
Rob the opportunity good enough and where we were being too conservative.
Well I'm on the other hand.
Well the numbers I've also shied away probably means we we seize the opportunity where aggressiveness spending just like when we put up the slogan 10 billion subsidiary.
Really mean it it's not just the marketing slogan, it's actually the absolute dollars spending and we see.
This is a very good option and we think.
Every penny was spent on behalf of our hop off our.
Investors, it's a one it's a worthwhile investment.
Thank you.
Your next question is from that I know <unk> Ah Yes. Please go ahead.
Hi, Yes. Thank you my question is surrounded Brent could we get an update.
On single dose traction with friends, we've seen significant increasing GMT.
TMB mix from the high tier cities.
We've seen more incentives to to try to friends to come here and also a we've seen <unk> promotional programs. So.
When we look at both brands and C N.
How much to achieve the mixed trended in recent quarters and how does that look going forward in the context of competition. Thanks.
Sure they deserve for that question.
As we mentioned we don't.
Strategically single goal has always being apart from design to address all user base across both geographic and social economic spending.
So our focus on brand recent promotions.
The result of us trying to fill up the whole so the gas on intensive product portfolios on our platform.
You have notice.
With increasing demand.
As we bring them more users I would say phone tier one tier two cities.
They are demands an interest in product or categories that way of brand started imports and these have been historically areas where people go it hasn't.
Being very strong that and as such we have focused on bringing brands onto the platform.
We also are very effective run promotional.
Campaigns with these brands interest, creating a recognition of the.
Quality of experiences.
In terms of letting people understand that great value and authenticity of the product are not the peak construction tradition of each other and that help us to build trust very quickly with that.
Core of users.
And this is why I think from our perspective, we will continue to explore opportunities to work with more brands.
That said of course.
As we have discussing our prepared remarks wasn't exclusively continues to be a factor at play.
Well, we have merchants willing to work with with US we have town.
You know at all times, we need to explore alternate ways of bring your own so our platform products, which could have otherwise be may available to us much more directly.
So from our perspective were seeing the experiences are consumed recipe impaired through that process and additional frictions, creating additional costs.
Nevertheless, I think our interest remains in making sure that the product. Our users are interested in our available and we will do our best to continue to source and work with merchants to bring those products onto our platform.
In terms of C M. As John It is still small and it's going to take a long time before they become a meaningful JV contributor.
Certainly I think the way that.
If you go as the problem is differentiated it's the fact that that we are very much spacing from the perspective, the consumers our slogan no more saving more fun. It is a consumer oriented approach to e-commerce .
Not only are we trying to make it easier for all the merchants to do business. Our platform. We also want to make sure that our consumers are able to get the best value CTM as an example, where we try to basically create.
Value in the existing supply chain by eliminating improving on existing supply chain.
In terms of C M and it does a monetization of C. M brands, we are not going to be well put differently, because we have the ability to aggregate demand and to provide our manufacturing partner with insights into consumer preferences.
We believe in goes always better equipped and other our competitors to try.
And then what do you see two m. brands at the same time. It is important that we allow the C and brand so happy enough.
Exposure opportunities our problem. This is why we cannot off the bat work with thousands of many factors and tried to bring them on to the bottom at one.
We're working with these vendors one by one you know the first batch we had around 20 years manufacturing partners across a couple of a major categories.
And we are now.
Hello around 65.
Harnessing, our new brands and C. N program. So we will continue to invest in our C. I mean initiative, we'd be leaving a longer term, that's what's going to provide sustainable value to and differentiated value to our users by near term, we will not be ascribing algea into it.
<unk>.
Well just at a couple of centers to do Sasha the competition around the brands.
Pretty severe in the past few quarters and therefore, the older wells in the fourth Exclusivities had to be adopted again.
And it has.
Interesting effect in the industry and it also has a lump and profound impact in a ecosystem.
Oh.
In away at it also affects the data on that.
But.
Dynamics of between different departments, whether the one thing that brand owners or.
One thing pitching the China branch and headquarter and saw National flood. So it is a very interesting phenomenon to observe and it's.
Interesting battle.
10 actually.
But if we step that kind of that.
I think all war chance as very off this is just like.
Looking at a very running down the Momsen and you will see big stone.
His way and therefore the Pos.
You may observe some ziggo desktops, often member, but overall, it's running and Ah it's habitable so.
So I think that pretty much <expletive> just margins thats kind of situation of the competition around brands and and are on the topic of.
False exclusivity.
Okay. Thanks Wes.
Yes. Thank you. Your next question just from the nine of Gregory Zhao of Barclays. Please go ahead.
Hi, My name is that for taking my questions. So their first talk about tobacco use application. So we saw your users to maintain a boost I may you and then your buyer, you're making very strong growth momentum careful I understand it's kind of numbers in terms of York, our user acquisition, China, where I feel like.
Like by a quite happy child May now for the new users can come from we chat.
Youre maybe Rob.
Hi, there.
Media platform, China, and also very people on our sales and marketing suggested I do want to understand them or how do you.
Matter is a marketing campaign and that the promotional events, how why right through to drive how are you all freaking leverage going forward. Thank you very much.
Well I'll answer your question first and then David will follow a loss into their quickly I think.
The vast majority of our users are our apps.
And.
Speaking of.
Zohydro ER or the active that new users.
And also may use I think.
You said, the thinking or a new use that position.
Well the grossing conceptually I results of high retention all to users.
We look at a number of and you asked by users. It's absolutely active users in the past worthwhile so more importantly.
We reported that part of use actually we have to maintain.
While the majority vast majority of the existing users to stay our platform and we may have test.
And that's it.
Necessary condition for the growth of.
Yeah, the active users.
David.
Two carrington's.
Those are two columns Commons.
So first of all in terms of users acquisition as Colin mentioned, but is it to that is again our focus on user engagements are you wanted to make sure that are the vast majority of our user base right has a good and solid experiences and more importantly.
So trying to drive growth is more important that will increase and the one thing we can do help reduce increased the frequency.
Activities on top of both in terms of making purchases, but also in terms of having great experience and therefore are helping to share and helping to drive new users.
So as we have talked about you know ourselves in marketing spend this is really encapsulated a few different parts.
Offline advertising in that side really comes from both in terms of online Muse acquisition, but more importantly on promotional activities and coupons.
And as we've mentioned before we evaluate the ROI of these promotions and coupons, but looking at the behavior change about users after receipt.
Yeah.
So for example, we was observed our users time span whether they share with their friends. They buy new users as the other day Ob order frequency and product categories purchased new affiliates or if we observed that some users only purchase when they have a coupon and do not do anything else.
So these would be low value users that do not meet our already thresholds for investments.
Yeah, they hand.
If you are.
Users are.
Responding to a program that way, we expected to and are sharing that we would choose to continue those programs above and beyond a certain.
Shopping holidays or festivals, let's call that I mentioned that a lot earnings call people go is not a platform designed specifically to have peaked around shopping festivals things that we won users to be able to come through our problem all the time and be able to define.
That's the I value for money products.
And we believe the you know the age the spending pattern that we're sitting with our tier one users are off one.
Over well over 5009 be based on Q3, I know nice figure.
Is a good.
Shipments to the quality of.
Their experience and their experiences in the quality of the user base that we're seeing similar to our larger peers.
Okay.
Last question, Yes. That's question is from the nine Natalie Wu of see ITC. Please go ahead.
Hi, Good evening, Thanks for taking my question and congratulations Verisign quota on my question is regarding the shopping patterns for the newly added USIS I'm just wondering if they applied by those subsidized brand the commodities how much help them will be how many of them will be.
Still sticking to those high ticket size Brent commodities.
The future.
How much <unk>, how many of them will diversify their shopping choices on our platform to those value for money products.
Oh, so if there any notable differences.
Regarding the Netscape retention rate all spending pattern for those newly acquired with it you said Uh huh.
Maybe the first purchase our top on his stuff band to come up at Brad commodities. Thank you.
Thank you Valley.
So where do we think about Oh, hi value users, who came to our problem.
Initially maybe too you know about buying a nice to hear dryers or buying a than you are they just iPhone is actually too.
To deliver them and really well, we see them actually as an investment in their user experiences I'll hop off again.
If they come to our problem and our spending the money to buy an iPhone and a half the great experiences.
Yes, a quality and authenticity it gives them actually a lot more confidence.
You know this actually pays going a number of different ways first of all we don't think it is so value for money for us as we the way we think about it is always.
We think of it at the Universal concept right across different product or categories. If you're looking for the premium you know these items like I phone and.
I sense of working with our merchants, we may decide you will happen Lois available price and the highest quality product that's authenticity.
At the same time, you know this lower show a barrier psychologically to try other things our platform Ramey, having bought an iPhone gives you greater comfort to try other categories for example that cosmetics.
Which are not bass fees are also fairly high but you know this is something that you can potentially by with higher frequency at the same time you might have heard that you know people go offers great fruits, great household products high value for money products and they actually we well in terms of user experience. We have seen if you know these high value customers come to our pop.
So they end up actually spending a lot more time exploring and started buying products across other categories a lot faster.
Well.
Just to add to David so little bit.
Well I guess, probably you maybe half seeing some investor friends. Ron do you are buying some of the high valued products, but at the same time.
Objective Les you really need to guarantee mine.
It has lost a majority of the users who are buying to subs subsidized products are older users. They are not newcomers that the majority of them actually are the older ones.
Debt here and do you have this slide up their needs, although they are buying.
Cheaper products before.
We also need a cheaper arrival, so our 10 billion subsidiary program just to sort of Jumpstarted there.
Slide up again.
Not that this program targets a different set of users.
The fact that Youre seeing self friends are wrong. So you've got your friends around you buying.
Just a very very minor side in fact, it's not the purpose.
Not to.
So the big picture or.
It's not even close to that effect.
Got it I had a very quick follow up if I may.
Just in terms of the subsidy policy and your social marketing spending I, just wonder if that operating metrics that pace I said keep perimeter of to after which which is to a certain level you would decide to reduce the level of subsidizing the exist.
Thank you assess thank you.
Ah, Yes, we do have a message for the obviously, we cannot this whole domestic to you.
So oh, so probably.
Yes, right mission, we cannot comment on when we will stop N will increasingly less.
But what I can say now that we're pretty happy with other money every penny was that.
Very happy with through actions up to users.
Ah weighing on worried about whether the users that actually coming to buy I fall and never come again Dan.
Probably the best time to answer your question is next quarter ended the quarter. After the next wave she the numbers.
The question goes away.
And this is David.
And now they just to wrap this question up I will also make.
Make references to the fact that a lot of these so-called deals that we offer our actually only available you're limited quantities I. So in terms of our actually RASM and exposure.
That is actually within our control, but rather than knock on effect of people sharing their experiences as well, where you're looking to do and for people who have.
Finished by these products.
And it's important that gives a good experiences and there will continue to help us to pass the word of mouth.
Got it thank you.
Ladies and gentlemen, the Seattle question answer session that data conference that's on managements discussion.
Thanks, Andy and thank you everyone for dialing into our earnings call I didn't have any questions here for you just reach out the IR. Thank you very much.
Thank you.
Thank you, ladies and gentlemen that doesn't today conference for today and thank you for participating human I'll discuss.