Q1 2020 Earnings Call
[music].
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This time, all participants are in the listen only mode.
After managements prepared remarks, there will be acuity recession today's conference call is being recorded.
No like to turn the conference over to your first speaker today Mr. Rick Hsu. Please go ahead Sir.
Thank you Richard Hello, everyone and thank you for joining US today, you know earnings release was interested to distribute it earlier on is available on the IR website at <unk> best adopting a little dot com, that's one of through the global Newswire services.
On today's call steel, calling one what makes on general remarks, I don't know performance would first quarter of 2020 on Koby 90 implication on our industrial business and our team Oh video strategy, David Leo will elaborate further on the specifics.
Digital initiatives as well take us through open as a result for fourth quarter ended March 31st point 20.
Going again I'd like to remind you that they've conference contain forward looking statements within the meaning of section 21 of the U.S. Securities Exchange Echo 1924, that's amended at the defining the U.S. Private Securities Litigation Reform Act of 105.
These forward looking statements can be identified by terminologies, such as well anticipate and similar statements such statements are based upon managements current expectations on the current market operating conditions and relate to convince that involve known and on Oh, no what risks uncertainties and other factors all of which are difficult to predict and many of which beyond the company's country.
<unk>, which make all the comedy is actual results performance or achievements to differ materially from moving forward looking statements.
Further information regarding these and other risks and uncertainties fill factors included it in a comedy fighting with the U.S. Securities and Exchange Commission. The comedy does not undertake an obligation to update any forward looking statements as a result of new information for the bench or otherwise except as required under the African books now in its my pleasure to introduce chairman and Chief Executive Officer Mr. well.
This call. Please go ahead.
Thank you Nick.
Hello, everyone and thanks for joining our first quarter, probably trendy results announcement.
It was hard to believe that aware nearly half way through year, while holding on Ting has for the much off the wall to on the holding pattern since February.
Also resulted in a pure it up intense activity for many industries and the companies seeking to cope with such unprecedented phenomena [noise].
Holding on Ting has unleashed a powerful forces that change in a way when the work kind of play.
It has compressed the yourself with behavioral change.
Allergan those options up online commerce at unprecedented pace.
No I'm whatever people rely on platforms to meet not adjust their discretionary along but for their crude a critical need.
Well, the while E commerce has crossing important a threshold and that become more integral to people's lives.
This change also requires a lot of trust on a part of consumers.
Something better platforms mother continue to work hard to arm.
The company was made up your leverage physicians to step by step up our support of our users and a merchant community to help with tied them over these challenging times.
In the near term these initiatives might be higher bandwidth costs more cost to help offset the price increases for medical and household essentials or even more free traffic support for our most interest through the merchants.
But if we make these decisions deliberately because they are consistent with our corporate culture themselves or doing the right thing.
These.
Consciousness, a cautious the investments.
Beauty invaluable trust with our users people remember when you are there for them in there in their time off mute.
The pandemic Warsaw Alisha another powerful force.
That often need for better ways to intact and socialize online.
This need to for the right digital tools has never has never been more important with diffusing of the physical and virtual worlds because people must now find ways to do online what they used to do I'll fly.
Whether it is going to office shopping arm at a retail mall sharing cop popcorn matter movies or having hobspot scatter.
We have positioned ourselves to rise a convergence of these are powerful forces.
We design our platform to maximize social interaction by tapping a hour in a desire to connect tend to share our.
Our mission has never been more.
More relevant well see until these challenging times, which was to provide a fall and engaging environment for people to stop to get to shop, together and get to the best value for their money.
We know we're on a right track because we crossed to 600 million and you're asking for users.
You active buyers for the first time this past quarter.
And our user engagement metrics continue to improve.
Uh Huh coping 19 has changed the retail industry.
So how has coking 19 change the retail industry and E commerce.
What do these changed me for the company Lycopene door.
Let me highlight three specific change.
First live streaming.
With the coping 19, we realize that the boundaries between virtual and physical world, having bird to an unprecedented a degree we launched our lifestream servicing November last year and it would have found it to be an effective tool in lowering the barriers to helping consumers to overcome there.
Aversion to buying certain product categories are.
These categories include high and the jury's such as those of the Jade premium seafood like Argentine shrink or.
Like lobster or even farming equivalents, we see live streaming not only as a channel to sell products, but more importantly, a value for merchants to share their personal experiences and interact with the users.
Live streaming is a great way to showcase search offline experience that otherwise the available to many of our users. For example, we organize a live streaming tours to seven major museums, a worldwide, while featuring select items from their representative gift to shops.
Through live streaming producers beauty trust with potential consumers by showcasing their work.
For our how they pick food from there from their farms.
Two holiday impact a pack to catch up today or even holiday makes delicious meatballs by hand live streaming opens a window into the lives of producers and unfolds. The sorry after product in a way that a simple investing cannot.
Live streaming also helps consumers to better appreciate and a differentiate the products by having the merchant demonstrated product and answering questions. Just like if one were shopping the mall.
The second to change is faster online offline integration.
We still see significant opportunity in combining the scale of our online traffic was offline retail experiences early may well joining forces with the Shanghai government and the local enterprises to successfully organized the May five shopping festival.
In five days, we'll have to drive over RMB 3.2 billion of online sales in the Shanghai area through 100 to shopping malls more than 70 to 80 million users enjoyed a live streaming content produced by 1136 P.D. livestream.
In rooms in collaboration with CCTV.
Users were able to enjoy consumer services.
In stores sales ship our salespeople.
Pinto also sold over 600 cars in the first two hours after festival in a partnership with Shanghai base and say I Citigroup.
We are positive with we partner with wore me to expedite the integration of the online to offline sales experience haul appliances, and the consumer electronics, a product categories, where deliver ray infiltration and office sales services I imports into parts of the purchase consideration.
Almost nationwide retail enough work.
What a play a crucial role in a part of the sales process and are working together to redesign the shopping express.
The third change relates to helping s. borders pivot to the domestic consumer markets.
Due to the worldwide spread out of the Corona virus, China's export was down 11.4% here in the first quarter kind of the Trinity.
And the outlook remains uncertain will have been working closely with local governments in China to direct export oriented the production capacity towards domestic consumption to Mount Covance coping non team has forced to these high quality manufacturers to focus on domestic market opportunity.
These earlier than they might have otherwise this plays well into our C ambition and we'll look forward to working with them to offer more value for money products tailored for our users.
On holding on to impact.
In the first quarter of Twentytwenty, China's GDP fell by 6.8 from a year ago total retail sales of consumer goods were down 19% at the same time. The worldwide depend then it started to weigh on China's exports consumers really.
Slide on E commerce for the bulk of their purchases during the crisis.
Since our March and earnings call travel restrictions for most areas of China, helping left it and the physical outlets have we reopened the.
The domestic economy has started to recover we observed that the online retail set sales of physical goods increased by 5.9% during the first quarter the pace up online buying picked up in March when largest logistics networks and supply chain resumed is the full capacity.
For the indoor.
This past quarter was among the most challenging our brief history.
But if we continue to solidly execute our user centric strategy.
For the last 12 months ended in March March 31st Twentytwenty, We recorded a GMB growth of 108% to RMB 1150, 7 billion and the served at 628 million and your active buyers.
Six 2% prior year ago at 43 million for last quarter.
Our first quarter revenue grew 44% to our Matt to RMB 6.5 billion and it will continue to invest in scales in sales and marketing to engage and support our users when they were most in need.
This past quarter was also one of the most rewarding for us.
Because we were able to make a significant contributions to the society.
We're also saw the next generation of leaders Emergen, they stepped up to serve our users, which I will expand on later.
During the peak off outbreak in China, our team target Toro the to ensure that to the daily needs of our users a matching the timely fashion within the safety of hour of their homes.
We then devoted our managers to support the recovery and the online migration up and many offline business as it impacts not for coping 19 subsidized.
As a platform serving over 600 million users covert 19 reminded us of how important PVD has become to our ecosystem of users merchants and the business partners.
In order to help to small and medium size the business owners.
And our platform, we're proactively reduced the advertising fees charged to merchants provided incentives for those fulfilling orders the doors and outbreak and a direct to the free traffic to medical supplies and household items that our users needed the most while under current team.
Yeah addition, we subsidize the medical products, such as the Moskin and disinfectant to help counter prices bikes due to the supply demand imbalance.
We're also defray the part of the logistics costs.
These initiatives resulted in lower revenue as a percentage of originally and a higher cost of goods sold to during the first quarter, but it was the right thing to do I believe.
During this time period.
We remain focused on building trust with our users trust in the sense of for community have become more critical in such on certain times.
For example, we're stepped up our commitment in live streaming and immediately accessible to all our merchants.
Another feature we do trust is a community squad shopping feature that we introduced for help locked down consumers in local communities to buy daily necessities and food for our new by grocer groceries and supermarkets.
As a result, we have observed the positive impact.
Our user engagement generics, although the first quarter is typically this slowest the for E Commerce and May you to active annual buyers ratio increased from 6.5, Paul 6.4, 65.4% in the first quarter of 2019% to 77.6%.
In the first quarter in Twentytwenty.
This ratio reflects improvement in our user satisfaction and as more users are finding products our platform.
After interest meets their expectations and a proppant them took place orders.
Our team and the internal initiatives.
This past quarter, we overcame some of that rate has its challenges since our company's inception.
The founder and CEO I was touched to see our team put serving our 600 million plus user community as their top priority.
His commitment reflects the value of our employees the corporate culture up and then at that we seek to boot.
As I try as I said, our March conference call. We saw many young people emerge through this time period as new leaders of our business.
They have stepped up and they and their aspiration and innovation pushing us all forward looking our quiet at <unk>.
Our past two realized can do those division.
During 2019. These young leaders made a practical business physicians and executed them sounds like exceeding expectations of our substantial user base.
This is why we as a company were able to accelerate to the recovery of our business and grow our average daily order volume to over six to me a 50 million in March they're ready to take 'em more responsibilities for running the business.
The year had a there is very important for PD last year.
Our GMB cross I can be one trillion milestone and has capricor has kept growing.
We're encouraged by this recognition for our users but for that same time.
We feel even greater responsibility our shoulders would take this responsibility seriously.
And if we continue to reflect.
How we can improve.
How can we provide our user with a better experience on Pinkie PVD.
Okay, and we make the discovery our platform more efficient more engaging and a more from.
How can we offer them more choices and give them more reinsurance on quality and value.
This year will focus on not all Ambrose, but also on the number of key initiatives that are what the from that or what to form a sound foundation for future.
These include continuing to improve on corporate governance upgrading internal systems, improving prison now develop development and evaluation.
Streamlining internal approval process and a motivating more internal on more internal idea generation and the resource competition.
In the past two months, we completed our internal performance review and the feedback I've mentioned, our March call. Most of our employees have received the pay raise in recognition of their dedication and a contribution.
I have also promoted a number of them.
We hope to see more of them grow into new users of our company.
As I mentioned that in my letter to shareholders.
In this new euro.
We as a new life form.
Should proceed and more Hambali and a bear more responsibility. This is true for us as a company and a four where young people as a new generation off leaders.
I'll now turn over to David too sick to discuss financial results for the quarter.
Thank you color and Hello, everyone.
Let me first comment at all our capital markets activity since the end of the first quarter.
First we subscribe for $200 million are convertible bonds, and forming a leading retailer home appliances in consumer electronics in China.
We entered into a strategic cooperation agreement pursuant to which gourmet will migrate over its all players can use onto our platform and work together with us to offer more customized brando goods.
And better off wire services.
We'll continue to evaluate opportunities that will increase value to our shit user sent to our shareholders.
Secondly, we launch a private placement of U.S. dollar 1.1 billion at the end of March after receiving strong reverse inquiry for long term investors.
The placed on was closed in early April.
Net proceeds from the placement will only be reflected in our financials for the June quarter.
For the avoidance about our balance sheet and cashless payments for the quarter ended March 31st Twentytwenty do not include cash raised from this placement.
Since the placement the company has received a number of questions our capital raises operating cash flow and cash position.
Let me take this opportunity to respond.
First.
Why do we go ahead with a private placement in March.
Like many blue chip companies, such as Berkshire Hathaway, There's me Pfizer and Netflix that raise capital in the past few months.
We also expect high global economic uncertainty and capital market volatility to persist as the world economy struggles to regain its foothold.
At the same time, we expect a challenging outlook to give race to more attractive investment opportunities.
The March by replacing further strengthens our net cash position.
To whether a potential economic downturn.
And to pursue strategic opportunities without having to compromise the flexibility in our core business.
Gourmets a good example.
Second question.
Why have we tapped the capital markets. So many times since our IPO.
This is a good question.
In fact, we had anticipated this possibility at the time of IPO.
As Colin mentioned as shareholder letter this year, which should be and we are extremely grateful of our precious you.
While feature of being young however is that we grow very fast.
There's work, sometimes to our advantage, but sometimes to our disadvantage.
Well, we went public in 2018 in order to complete our listing expeditiously and not distract management from growing the business, we specifically limited the size of our offering in terms of dilution to.
To be the smallest among comparable US listed TMT company by market cap.
Dilution at a time or IPO was 8.2% as compared to anywhere between 10% to 20% stake offer by other issuers IPO.
As a result, we were able to complete our IPO I'm extremely tight timetable as opposed to at least a year for others.
We have sold in aggregate, 16.2% of our company on a fully diluted and has converted basis inclusive of IPO.
Similar to the normal IPO dilution of other U.S. listed companies.
As we operating a hyper competitive the industry against peers with much more substantial capital resources, we believe continuing to be nimble.
After mistake on financing will enable us to optimize our net proceeds while minimizing dilution.
Third question.
As PBB raising money again, because it's burning cash too quickly.
Many people have assumed that our increased sales and marketing expenses imply we are bringing cash and assisted driving our users with investors capital.
But we like to play out to our investors analysts in the public.
So look closer at our cashless payments.
Even though we may from time to time record quarter of net operating outflow.
Because of seasonality such as this past quarter.
Our cash flows our operations on an annual basis have been positive since 2016.
Even if we exclude changes in payables to merchants, which our funds held in escrow for merchants.
Our annual operating cash flows are still positive.
This means that the cash generated by our core business is sufficient to fund our operations without using that cash contributor from our financing investing activities.
In addition, our net working capital is negative and changes in our net working cap operating capital.
Also negative.
Reflecting our efficient network capital management capital net working capital management.
In summary, our operations have been self sustaining since the end 2017.
We have not needed to spend any proceeds foreign capital raising our operations, including.
The coupons on promotion programs.
Given we already have sufficient cash flow from operations. So many investors may want to pro further on why we fund raise from a capital markets at all.
This is also a quick question.
Colin mentioned in his shareholder letter at the time of our IPO that we're committed to become an open and transparent half one from day one.
Despite being young and smartphone perfect.
As a platform serving a 620 million users in China and potentially more in the future.
We believe we could provide a public with more transparency. If we are supervised by our users and the market as a public listed company just like this quarterly earnings call.
He has indeed help our team to go faster as a public company in the past two years.
Let me now shift gears and provide some updates our C M and agriculture initiatives.
Many of our ecosystem partners suffer phone call. The 19, and we have been doing our part to help with a recovery.
Starting in March we hosted a serious or life screaming PVD fairs in China as key production centers, including bundled Fujian judge on their sandal in collaboration with local governments and merchants to buy more locally produced specialties.
As of April Thirtyth total order number originated on these live streaming events reached 49 million.
We have five should each cooperation agreements with these local governments are continuing our support for high quality local manufacturers and merchants, who want the Lee can be strong partners forced into any initiatives over the long term.
Russia selling agriculture products were also negatively impacted during the outbreak.
In addition to the measures and support we mentioned our March earnings call, we announced our planting invests RMB 50 billion over the next five years to build up the infrastructure to assess farmers to sell online more efficiently.
Agriculture products contributed 13.6% over 2019 JV.
And the first quarter 2020 total orders of I could also product reach a billion representing a 184% year on year increase and SK use where with more than the 100000 orders also reached 1030 about 70% of our 2019 full year number.
Within the next three years, we'll continue to promote the sales.
Sales of agriculture products to traffic support training live streaming and other features we aim to have more than 1 million agriculture products stores with more than 1 million RMB cells in a year.
Now let me take you through our financial results for the quarter ended March 31st Twentytwenty.
We continue to see strong growth.
In our opera key operating metrics in the first quarter 2020.
Our annual active buyers for the last 12 months ended March 31st reached 628.1 million.
Representing an increase of 42.9 million from our 2019 annual active buyers.
Compared to the first quarter 2019, our last 12 month active annual buyer base grew by 42%.
Despite the first quarter being an off season for E Commerce.
Average annual active.
Average monthly active users in the quarter increase on the preceding fourth quarter peak season of 487.4 million.
Board, 68% growth on a year ago.
During the first quarter, China online course retail sales grew 5.9% year on year to reach nearly RMB 1.9 trillion as most people.
More people stay home than relied on E commerce due to social distancing measures.
People know saw an increase in purchases or medical supplies and household staples during the peak of cover 19, and we observe strong recovery in discretionary consumption in March.
Our last commentary on the grew a 108% year on year to reach RMB 1.1572 trillion.
The strong GMI growth reflected a sustained growth in our annual spending per active buyer, which was 47% to reached 1800 42.4.
RMB.
We recognize that our users are increasingly relying on us.
Now only it's our active buyer base growing we see them, gaining traction with our platform and buying higher value merchandise that higher frequency.
We will continue to serve our users by providing them with a consistent and satisfying shopping experience.
Our total revenues in the quarter ended March 31st Twentytwenty was 6.5 billion RMB, 44% from RMB 4.5 doing the same quarter last year.
Our total revenue comprised of online marketing services revenues and transaction services revenue.
Online marketing services revenue contributed RMB 5.5 billion this quarter constituting 84% of our total revenue.
This was up 39% compare to the same period last year.
Professional services revenue was 1 billion RMB this quarter constituting 16% of our total revenue and up 76% compared to the same period last year.
This quarter is the first time.
Our history that our online marketing services revenue increased at a lower rate compared to our transaction services revenue.
This was due to a few different factors.
One as core another Rs Brooks during Chinese new year holiday small and medium size merchants were adversely impacted enhance reduced advertising spend below their typical low season levels.
Two.
We supported our merchants in particular small and medium sized enterprises by offering them lower effective advertising rates.
And three we also directed traffic that we could have otherwise monetize to dedicated channels for medical supplies household staples and other necessities in high demand.
Since March we have seen pickup in advertising activity by our merchants, including has a nice with advertising race returning to normal levels.
Although the initiatives during the first quarter had a negative financial impact we believe that we're doing a rising and fulfilling our responsibility as the second largest ecommerce platform in China.
We are building invaluable trust with our 628 million users and 5.1 million merchants in this time a crisis.
Moving onto cost.
Our cost of revenues increased 110% from 873 point Threemillion R&D in the same period last year to 1.8 billion this quarter.
This translates to a gross margin of 72%.
Total cost of revenue increased mainly due to higher costs for cloud services call centers commercial support services, particularly as we rolled out our live streaming features so the merchants.
Total operating expenses this quarter were RMB 9.1 billion as compared to 5.8 billion in the same quarter 2019.
Our sales and marketing expenses this quarter increased 49% to 7.3 billion from.
4.9 billion a same quarter of 2019.
Our non-GAAP basis, our sales and marketing as a percentage or revenue was 108% as compared to 103% for the same quarter last year.
The increase over south and marketing expenses, mainly to help users whether through the pandemic.
Given the reduced advertising activities by our merchant during the first quarter, particularly in February we could have pair back our sales and marketing budget for the quarter and focus on minimizing loss.
Instead, our management team made a deliberate decision to further investing our ecosystem.
And reallocate our spending in ways that would benefit our users merchants most in the time a crisis because we consider this the re approach for a long term success.
Vancomycin started to spread at the end of January we acted quickly and stabilize prices of medical supplies and other critical products the target as subsidy.
In addition to assess merchant selling agriculture products to clear the inventories, we provided support and a host of several promotions to boost their sales on our platform.
Without commenting in China still recovering and the global situation still evolving we will continue to invest in building deeper trust and long term relationship with our users and solar community.
Twentytwenty will continue to be in putting your investments for us given we have already surpassed 600 million active buyers, we want to reiterate that it is not the new users, whom we are investing ourselves a marketing on our all of our users, particularly the existing ones.
This is because the existing users.
Come to trust us more as they come to focus more they will share the experiences with their friends and families and their social contacts and from time to time invite them to purchase together.
Therefore, we continue to invest in their trust mindshare engagement with us.
In the next few quarters, we expect our social marketing expenses to remain fairly dynamic and we'll continue to invest when we see opportunities that meet our ROI requirements.
General and administrative expenses were 238.3 million RMB, an increase of 43% from 236.1 million in the same quarter of 2019, primarily due to an increase in headcount.
On the non-GAAP basis, our GNS expenses as percentage or revenue was 2%.
Research and development expenses were 1005 doing RMB, an increase of 121% from 667.1 million a same quarter of 2019.
The increase was primarily due to an increase in headcount and the recruitment or more experience R&D personnel and an increase in argue either cloud services expenses.
We plan to further investing our R&D and Twentytwenty.
Non-GAAP basis, R&D expenses as percentage of revenue was 17%.
To sum up operating loss for the quarter was 3.6 billion on non-GAAP basis, compared with operating loss of 1.6 billion or same quarter 2019.
Operating loss on non-GAAP basis was 4.4 billion compared to RMB 2.1 billion or same quarter of 2019.
Net loss attributable to order our ordinary shareholders was 4.1 billion on a GAAP basis as compared to net loss of one thing that during the same quarter 2019.
Basic and diluted net loss per eight yes were RMB 3.5 for on a GAAP basis compared to RMB 1.64 in the same quarter 2019.
Non-GAAP net loss attributable to ordinary shareholders was RMB 3.2 billion compared to RMB 1.4 billion in the same quarter last year.
Non-GAAP basic and diluted net loss per eight yes were RMB 2.73, compared to RMB 1.2 in the same quarter 2019.
That completes our profit and loss payments for the quarter.
Net cash flow you still operating activities was RMB 570 567.1 million.
Now from RMB 1.5 billion using the same quarter 2019, primarily due to an increase in online marketing services revenues.
That's a march 31st Twentytwenty. The company has RMB 32.4 billion in cash cash equivalents unrestricted cash.
Excluding restricted cash we had RMB 5.5 billion cash and cash equivalents. In addition, we had RMB 37 billion in short term investments.
Our short term investments include time deposits money market funds and other securities that can be monetized regularly assess in that investors in evaluating our cash reserve should consider our short term investment together with our cash and cash equivalents.
As of the end of March we had.
RMB 42.6 billion of cash reserve, excluding net proceeds of U.S. dollar 1.5 billion from our recent private placement.
This concludes our prepared remarks.
Operator, we're now ready for questions. Thank you.
Ladies and gentlemen, we will now begin question answer session. If you wish to ask a question. Please press star one on your telephone and wait for your name to be announced if you wish to cancel your request. Please press the pound or Heskey. He gives more people the opportunity to ask question.
Please keep yourself no more than one question at a time and you May Press Star one again, if you have a follow up question. Thank you.
Yeah.
Your first question comes from the line as Natalie Wu FDIC see please ask your question.
Hi, gentlemen, thank for taking my question and congratulations on that means of past quite a.
So just wondering what do you think that place estimated side that behind your team. These goals, we acceleration into first quarter inside out that could be 19 impact and also income from licensing function. How does that help your GMB growth powerful.
And it comes up that SSG. According to your observation in key.
Internationally for the question.
[music].
In terms of TMB grows we see that as a reflection.
Of our users continue endorsement of our.
Strategy and our platform and so you have demonstrated through the first quarter, we continue to make certain marketing investments in our users entering our merchants.
And as China recover or as the Pandemics. Despite a towards the end of February and heading into March we have seen strong recovery in consumer demand. So overall I would say by the consumer demand has not been.
Impacted Nicole the nice thing and you saw seal is how to catch up.
There is other both merchants promoting increasing the promotional activities on our platform as well as logistics being back.
In normal levels. So this is why we believe we were able to by middle of March start shipping over 50 million they owe orders on a daily basis.
And because of that.
We see that consumers are spending on our platform are now with higher frequency and also with higher ARPU, resulting in overall, increasing our matching GMB.
In terms of live streaming.
Specifically, yes, you had mentioned business again business initiative.
For us we only robot livestream into all the merchants in January despite the product being online at end of last year.
We see lecturing is a great way to bring online and offline would we see glycaemic has great way to bring online. This offline expenses are yours. The users may not be probably too in that they realize.
So to rise change were encouraging merchants are being problem users into their day to day to share with them interesting Internet painting.
Parts about their products.
As such we believe that you had the benefit loading.
The barrier, so you're lowering consumers aversion to spend in certain categories, such as jewelry or you know lifes seafood data we are selling on the platform.
And we believe that this will add this is beneficial in creating further engagement and stickiness.
Repeat purchases between merchants end users.
Next question.
Yes.
Your next question comes from the line of Eddie when of Morgan Stanley. Please ask question.
Hi, I'm management. Thank you for taking my questions. My questions also about the Germany and the opt for growth in the first quarter.
I mentioned that in March actually you have witnessed steel users have increased the discretionary I.
Items can you elaborate more about you know what kind of the discussion I guess you know how witness.
The a user spending in March and award or what are the new.
New York guidance categories, you would like to expand actually this year.
No for four or for the platform. Thank you.
Yes, Thank you very.
In terms of our JV distribution by product categories, I would say that the covert lighting impact is at best temporary so overall for the quarter. We have now observed our Jimmy distribution to deviate significantly from where he was before so apparels and FMCG continue to account for the most of our.
Most of our JV for the quarter, we have seen apparels during the height of academic should be more impacted relative to other categories, but in general we have seen we pickup being activities across the board.
Specific to our platform we continue to.
Evaluate our consumers interested needs and we continue to expand our strategy of being a deepening our.
Deepening the data offerings into categories those costs, increasing our breadth.
Specifically I think you know as we have demonstrated through too much for 2019, our investments in.
Building trust with our users are paying off in categories, such as coast cosmetics.
Consumer electronics and these will be categories that we continue to grow heading into twentytwenty by we are seeing both across the board.
Thank you.
Operator next question comes from.
Your next question comes from the line of Thomas Chong of Jefferies. Please ask your question.
Good evening, I'm, saying Oh management.
Question on asking on behalf of Thomas tone and.
My question is that.
Hmm.
You can see that.
Yeah, I mean, it's showing a very good retail and you have any strategy in driving that GMI and music row in.
On T. and especially in second half and we also want to ask about.
On the.
Yes. Thank you.
Sure in terms of our GMB growth driver.
As we have mentioned the focus for the platform. Our strategy is really about revolves around user engagement.
And it is about giving the users what they want and serving them well.
So we do see this strong growth in first quarter NRG ALLETE, despite the low seasonality and new challenges posed by the epidemic has an endorsement by user of.
Our efforts, putting Bob paying off meaning that we are seeing users being able to shop with more confidence on our platform and buying things with greater assurance and we intend to continue to invest.
In our user engagements as I mentioned in my only marks our social marketing spend are really targeted at all the users our platform, particularly the existing ones.
Because these are users who are familiar and recognize the value that we bring to.
Their consumption and these are our.
The sorry influences, our 12 put differently for our platform that will be able to continue to how spreads they experiences that.
Peazazz Pea D to others and help us, bringing other users and making them also more engagement on our platform.
In terms of C and I would note that as you do I Miss a long term secular trend and it is not a winner takes all games. So this is something that will take considerably more time and effort to drive.
And in 2019, we have a 106 full fledged CPM partners and we believe we're on track to hit a thousand of these financed by year end of Twentytwenty.
The current though it was coming out over night seeing as Colin had mentioned, we believe that we are even better more better positioned to take benefit because of the 19 has forced.
A lot of export oriented manufacturers a merchant so we think a lot harder by their strategy up and refocus on the domestic consumption. So by working with the local government manufacturers, we have being able to identify a lot of strong potential partners that we believe will celebrate our.
Our CRM efforts over the long term.
Thank you so much.
Your next question.
Your next question comes from the line of Hanjin Kim of Macquarie. Please ask your question.
[noise] [noise] excuse me Mr. Han Yun Kim.
Your line is open.
Okay.
[noise] [noise] [noise], operator, why don't we move onto the next question.
[noise] [noise]. Your next question comes from the line nationally.
Of Bank of America. Please ask your question.
Hi, Good evening management, congratulations the only way now and thanks for taking my question.
My question actually related to the other commission revenue, we reported what I would actually I understand that quarter to advertising revenue actually grow slower than a commission wrapping it quite off like we actually provide them see traffic.
My 10th and also on they actually I have nowhere advertising I guess I'm just curious like heard the cancellation like next election.
Actually revenue.
Seems like the commission rate quota actually is higher than.
The second hop off last year, So just to make sure do we actually includes them off now I'd like.
Like membership revenue.
Oh I got transaction related revenue today revenue line or it's just a quick question, we have higher payment or other transaction related pop. So we have also increases Hodge I'm actually going to particularly Robin yes, well. Thanks.
So as we go through our sort of question. So to answer your question. Our definition for transaction services revenue is consistent through quarter. So it is the same as where we have.
Is on the same base as a way houses.
Just close in the pilot quarter I will say that you know there we do see increased costs.
In our business and this is partly reflected in the gross margin because we are investing a lot.
A more aggressively in cloud infrastructures in order to support live streaming.
On our platform.
But on the commission rate by we are not really adding hard more payment or and attacks.
Right.
No.
Got it thanks.
Your next question comes from the line of Alisha, you Atlas Citigroup. Please ask your question.
Hi, Good evening management. Thank you for taking my question Uh Huh.
A question.
On the lab.
Thank you pull back to my Chili's, So qualitative color that you could see price in terms of the money to is each way and for how long a is that in the form of Mod Duffy topic support Oh is it more the payment Commission rebate.
And then on the matching or is that matching for the promotion pricing I'm out to the sales and marketing. Thank you.
Thank you Alicia as we as I have mentioned in my remark.
We do believe that well I think war.
Couple of minutes I suppose.
First the culminating does mean that.
Many of our merchants have to cut back their social marketing.
They're on advertising budget.
During the first quarter and certainly in much of the February this was impacted.
In response to the difficulties that our merchants are making we do we are offering better incentive programs. This pace.
Both in the form you know effectively lower rates.
As well as free traffic as you have mentioned so intensive trying to estimate the impact I would encourage.
I wish I used to take a look at our take rate so to speak for online advertising revenue in other quarters and estimate on the how we I'm happy I guess, the JV that we were generating for this quarter. If we were.
If we were receiving a same type of take rate what that content would be and I think you will notice that our.
Profitability will be significantly improved.
And what is impacting up because to support that we have dealings with the merchants I went just add on top of that we have seen the activities on advertising pickup in March as well as.
As far as to the race returning to more normalized level.
Mhm.
Okay, great. Thank you congrats on solid results.
Your next question comes from the line.
Charlie Chan of China Renaissance. Please ask your question.
Hi, I'm management. Thanks for taking my question. So I have a follow up question not undertake rider, which I have elaborate a little bit more up so just to go back to that.
Thank you guys thinking basically de at GMB growth basically a is robust and you'll give free traffic and central cheese Subsidise versions. During this difficult situation. So.
Thank you there's a need for you to continue to subsidize them in this recovery periods in the coming quarter and going forward.
If you talk to achieve Keith so much subsidies as you did before do you think that will be negatively impact youre GMB going forward. Thank you.
Uh huh.
Sure.
As I have mentioned earlier are.
Take rates so to speak or are the revenue that we are January lymphoma online marketing services since March.
We have seen a.
Returning to very much normalized level and heading into April and May.
And secondly, yes, I mentioned that by Middle of March were shipping already 50 million.
So it's on a daily basis, so both of business Momentums I would say for a platform has.
Recover to fairly normalized level and also in terms of revenue generation. We believe we are very close to your.
If not you know ahead of where we were ahead of the overnight teams.
Thank you.
Oh, Great. Your next question.
Your next question comes from the line aspirational body of Goldman Sachs. Please ask your question.
Thank you for.
Taking my call.
My question is quite simple in that if you look at what's happened in the quarter. You. We go that 19, yet your GMB grew.
Just wanted to see 99% I Wonder if you could comment on what the what could have happened to your GMB had sub 90 miles happen and it can be used that as a run rate for what we what could happen pulled the rest of the Oh, yeah, we into an accelerated mode of GMB growth.
Posts cover 19.
Yeah.
Things fish for the question.
I do believe the investment that we have made.
In our ecosystem partners and our users.
Through this period.
Is positive.
Through our overall business momentum and emerging from.
The overnight in you know that just say tomorrow early March as a.
As a starting point, we do see stronger business momentum.
And in turn so both in terms of user behavior, but also more importantly merchants trying to catch up for the the law. The time now they have lost in the first quarter. So we are certainly seen more willingness of merchants to span and engage with users and basha help to some extend their consumption.
But more importantly from our perspective, we do think that the uses our pass them are now shopping with higher frequency and are.
Making purchases of a higher ARPU number or items.
Yeah, Let me add a few words.
So for the first quarter.
The Panamera definitely has a negative impact on that business, even for the JV because that deliver capacity during that period of time is.
Shrinks a significantly.
And in China now.
All the businesses sort of a reopened it adds a society is getting back to normal so I wanted to say the.
Well the growth rate in everything should.
As sort of.
Back to the normal stage, but.
How big a VAT impact you either negative or positive depend that make it will have a our business in a short time I want to say one to be that's significant.
Let's look at next quarter over quarter after that but if you look at this problem I'm trying to answer this problem.
The two year three year timeframe.
I want to say, it's it'll be very interesting and I would say the impact will be huge either in active or positive.
Because I believe some of the user behaviors, both online and offline will be changed to significantly and many parts of the supply chain.
Is being shaped and or.
Being shipped or changes in a very fundamental way and it will not be that too.
To the days two to the normal stage.
It will be a new you normal weather normal is a good or bad it's hard to say, but escondida new format, it's a new ecosystem.
Right now I think we're sort of.
In a in a fairly good a position.
Two.
Oh to prosper in the next stage.
Yes. Thank you.
Operating that moved to thank you.
We have no question what is the last conference call.
Your next question comes from the line.
Binnie Wong of HSBC beside your question.
Hi, I'm thinking management's I think in the question incandescent gave my Panasonic order here I. Just a question here is that and I look at sounds more like the numbers. This quarter in terms of revenue Theres, a huge quarterly mutation being used to that.
Hmm, it's just a function because of our fast growing GMB, we hit the kinds of something else that we are you know because it's now endemic whatever you want to supplement elementary Stetson or is this something I said, we should be aware off and then.
Following up on this question he spoke about last quarter pumping out if you look at the mix in terms of how the lift up right because of course, Mr page, they're catching up with our P. S.
Oh, absolutely still still on the gap right. How are we going to raise how opportunity is yeah. I think you so much.
Thank you me. So I think your first question was regarding the take rate in general.
So.
We during the first quarter, we have seen merchants ability to advertise.
Impacted by culminating so that's one aspect of it and because of it and in order to continue to support them. We also gave them a better effective rate.
Advertisers for the first quarter, so that have a direct impact or.
Online marketing services take away for the first quarter.
I'm a nice as I mentioned 'em, we have seen activities pickup in March and the rates are returning to normal level.
Second question around the mix around and how do we go about increasing the ARPU I think the key for US is actually to continue to invest in our existing users to make a to make sure that they continue refined products that they find interesting and our again.
Getting going confidence to be able to shop.
More frequently and make just I'm really the timely ecommerce destination. So it is about investing in People's Mindshare, it's about investing in their engagement.
And we have seen that result in a pickup in their activities and also in ARPU.
In the first quarter and we believe that we are in on the right trend. So it's a frequency increases and thus we being bring more selection available to our users. We believe the ARPU. So naturally catch up yeah. So let me regarding up a poor let me simply put this way.
As raising output is not part of our our management teams KBR. So I think it will be a natural resolved as users engagement a increases and overtime.
Okay. Thanks right.
Thank you Sir okay.
Thanks, Vince I would now like to handle conference back to Mr. Nextshares for closing remarks.
Okay, Alright. Thanks, you for attending Tonight's call. If you have any further questions feel free to reach out to the IR team. Thank you and bye.
Ladies and gentlemen that does conclude our conference for today. Thank you for participating you may now disconnect.
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