Q3 2020 Jumia Technologies AG Earnings Call
Good morning, ladies and gentlemen.
Thank you for standing by welcome to Jimmy is results conference call for the third quarter of 2020.
This time.
Or in a listen only mode. After managements prepared remarks, there will be a question and answer session and I'd like to turn the call over to Samir head of Investor Relations for <unk>. Please go ahead.
Thank you good morning, everyone. Thank you for joining us today for our third quarter twice the Twinkie earnings call with US today are session, bringing <unk> co founder and CEO of <unk>.
And I'll try my name is right, yes, because.
Coal is also being webcast on our yard section I work with great website <unk>.
Let's start by covering the entire thing we'd like to remind you that our discussion today will include forward looking statements actuaries Dallas, maybe start materially from those indicated in the forward looking at season, what over each forward looking statement made speak well meet your expectations I guess today.
You take no obligation to publicly update or revise these statements.
Discussion of some of the risk factors that could cause actual results could differ from these forward looking statements Express today PCB sector section about where he's got 20-F filing.
Action on these calls we report it because that actually measures nothing for 15. According to the IMF right. You can find recourse against there is no one I guess, where I find that she measures to corresponding I phrase that actually measures in our earnings press release, which is available on our Investor Relations website. If that's okay.
Over to Sasha.
[music].
Thank you very much welcome everyone and thanks for joining the call.
Hope that said you are all staying safe and well.
About a year ago.
Two.
Well defensive actions in order to accelerate that's supposed to be cheap.
And strengthen our foundation for long term success.
Those were not easy decisions taken to implement they are now starting to pay off.
This despite a very bullish environment in Africa, where go bit 19, that's rather been a headwind for us so far.
Today, we bring results, which show that we are very well positioned and that our path to profitability is becoming clearer and clearer.
I want to thank all our teams all our partners for their discipline their dedication and hard work we are immensely grateful for their continued support.
Whether we are on a great mission to make ecommerce successful in Africa as was the case elsewhere in the world and drives positive impact in the process.
Let's turn to page free.
We have been very consistent in the strategy outlined to the market.
No I appreciate this may sound, a little bit repetitive to some of you, but I think it's very important to reiterate that the strategy remains unchanged.
It's a balance of four pillars, drawing the usage of our platform.
Raising the penetration and development of Jimmy I pay.
Gradual monetization and cost efficiency.
Well just see those four pillars are linked to each other and to some extent conflicting with each other.
We manage this equation on a dynamic basis, placing more or less emphasis on each pillar as we progress.
Everything we do is geared towards building a very strong platform with a very strong foundation to create long term value.
If we take a look at some of the key actions and I'm now on page for some of the key actions that we took about a year ago and healthy position us for the years ahead.
First we have initiated in late 2019.
The business makes rebalancing.
Yes, the older to place more focus on everyday product category.
Drives higher consumer lifetime value and to support margins.
The result of this action is we have increased the diversity of our product mix category.
We have reduced reliance on phones, and electronics, which went from 56% to 43% of GMB into free.
And we have gained more than 500 basis points of gross profit.
Oh gross profit.
Was 7.3% of GMP Q3 last year now it's 12.4%.
Secondly, we have made significant progress in terms of operational efficiency.
And we have generated very substantial cost savings we reduced.
Rent expense by 20% year over year, we reduced sales and advertising expense by 55% year over year.
As we drove improvement in terms of programmatic marketing and we leveraged the strength of the junior Brent.
And last one of the key initiatives that we undertook last year was the portfolio optimization initiative.
Where we wanted to enhance our business focus and capital allocation. We took the decision to exit three geographies. We took the decision to exit these folks flight and hotel bookings article we streamlined the organizational structure implemented overhead rationalized rationalization.
And this is now paying off as our gym, they are down 24% year over year in Q3.
Combined. These then you should do we think it's really enhance the fundamentals of the business and setting strong foundations for the long term and for the long term profitable growth Jim Young.
If we turn to page five with what's been repeating also in the past that the past abruptly cheese is including milestones and whenever we read one of those milestones we bring it forward.
And today, we are very pleased to share with you for a new milestone.
In Q3 Twentytwenty for the very first time ever we reached breakeven before G.N. they cost at group level.
And I will add that the majority of those countries as our portfolio work breakeven at this level in the fourth quarter as Twentytwenty now. This is obviously good news.
And as you know or you and I will detail that this is not driven by a surge in volume this improvement.
Is driven by improving our unit economics and working on the fundamental drivers of the piano.
Those drivers and the fundamentals of the unit economics, you can see them on page six.
We are now making this a deferred line before last we are now making 10 cents of profits before gn. They on a per older basis, a year ago, we were losing 2.2 euros per older.
On average each older costed us she street, 3% less sales and advertising to generate.
Drove 29% more gross profit and was 15% cheaper to full field, if we compare the two quarter and all this without any surge of volume all driven by underlying improvements of fundamentals and efficiency.
I think this business positions us well for the future yeah.
A year ago, our losses were getting wider as we were growing and today. The more we go the more profitable we become.
Not only do we expect these do you need to kind of makes to continue to improve.
As we drive effective monetization cost efficiencies, but we now know that growth means profitability.
The result of all those improvements on page seven.
Is our path to profitability year ago. Once again, we said very clearly that our objective was to reduce our loss in absolute terms.
And I think it's very clear that we are delivering strongly against that objective.
We reduced our adjusted EBITDA loss by 10% in Q1 year over year when.
26% in Q2 and by 50% in Q3.
All this achieved thanks to structural enhancements to our business rather than support from external factors as you know from the previous release to be 19 provided limited to no tailwind to the business and in a number of respects actually it's rather a headwind from the from the piano perspective.
You have on page eight for an update on the colleagues and to remind you that across most countries of our footprint.
Oh did for partial movement restriction restrictions or localized bounce rubber then nationwide or all encompassing not locked down and this did not do any drastic changes in consumer behavior on our platform or any meaningful acceleration in consumer adoption of E Commerce that African.
<unk>.
Instead go read Robert drove localized supply chain and logistics disruption.
And there was still significant disruption with restaurants in the fourth quarter of 2020.
Obviously, we we don't know the future development of the virus and its impact in the future, but we expect it to drive continued uncertainty on our operating environment. We also expect the macro challenges. It has created to weigh on consumer sometimes sentiments, we believe that all the time.
Actions that we took a year ago that I, just detailed and the current strategy I've actually enhance our resilience and position us very well for long term whatever happens.
Let's now deep dives in more details on the Q3 performance and we will start with the trends on U.S age. We are now on page 10.
As we have just said we look at the usage dynamics in the context of efficiency and monetization one of the major drivers of use age is of course, the marketing investment.
We have built over the last eight years, one of the strongest brands in Africa.
This now makes it possible for us to drive usage would record level of marketing efficiency.
We reduced hasn't advertising expense by 55% year over year.
A year ago, we were spending about two euros of sales and advertising to drive each older. Now we spent 0.9 euro that's an improvement of 53%.
If we take the 12 month perspective, we spent 5.6 year old per active consumers.
A year ago. This number was almost 10 euros. So that's an improvement of 43%.
Now in terms of use h. metrics at group level TMB was down 28% orders.
5% and actually if consumers grew by 23%.
Those evolutions abuse he has to be put in perspective with the actions we are taking and in particular, the the business mix rebalancing.
Turn to page 11 to review those use they sign it makes them in a bit more details.
First.
We are making significant progress on the rate of cancellations failed any reason return the ratio that we called sea FDR.
If you look at this ratio as a percentage of GMP decreased from 31% to 23% in Q3 2020, if you look at it on an older basis. It came from 23% to 14% and typically this ratio tends to be lower for holders.
As the how your appetite average item, but you tend to show higher cancellation rates <unk> rates.
[noise] there can be always quarterly fluctuations fluctuations have you seen this ratio, but as we drive more operational efficiency.
As we drive more penetration of Jim Happy we are able to drive improvements in this race show and it's a very good news for us because it means that a higher proportion of the U.S age that we generate on the platform can be monetized.
That our marketing investment is more efficient on on a net basis.
Then secondly, when you look at the trends of champion orders after CSAPR by category.
You can see very strong resilience.
I don't think it will be in key focus areas.
She did you dream is growing by 37% in value, 48% in volume and this despite into free still a lot of headwinds from Knights curfews, which have impacted the dinner deliveries I think we would have grown even faster without those disruptions did.
Digital services.
Growing by 14% in value as we continue to see faster growth in higher to get underway.
On the junior payout and older is contracted by 20% as a result of the concentrate kids decline in air time, which helps from the actions and these are just every time, we chose transaction were reduced as a result of reduced consumer incentives from us within this category because this category tends to.
The more premium promotional incentives and this is a good example of our disciplined approach regarding consumer lifetime value.
Sure the goods, which is a big part of our core business outside phone in electronics, we were slack in value.
And growing 15% in volume terms.
Categories like beauty fashion home and leaving continue to support the volume growth.
Well, it's an electronics.
<unk> declined by 41% in value and by 8% in the volume as the effects of the business makes rebalancing continue to play out over the quarter.
So overall, we drive use age as a balancing act between of course, the marketing efficiency the profitability gains on the one hand, and the long term platform rather than some growth on the overhand as we need to categories and business that supports consumer lifetime value.
We are pleased with the diversity achieved on the marketplace and the meaningful step up in unit economics that you can see on page 12, and here I will go fast because we as to some extent already talked about those numbers you can see the evolution of the reliance on funds electronics, which have gone from which has gone from 36 to 40.
<unk> percent.
And you can see that with that our average order value has decreased by 24% as the everyday product categories have been gaining share.
And you can see our older ships are now much more profitable.
In Q3 Twentytwenty.
I stare at DNA and selling advertising, we are now positive, whereas a year ago, we were losing more than to Europe.
So again, we're very pleased to achieve this milestone, especially knowing that the trend is quite consistent across our portfolio with the majority of the country's breaking even at that level.
The diversification of our mix and assortment always goes hand in hand in hand, with the meaningful improvement made on the supply side of the marketplace.
And on page 13, you can see how we are reinforcing genius positioning as the destination of choice for brands in Africa.
In.
The Q3 Twentytwenty alone we onboarded over 60 brands on the platform. We hosted the GBM brand festival over a full week in September with more than 200 participating brands offering a promotion special promotions free shipping it across the product categories and we had many great brands.
Participating, including Oh, Yeah, Yeah, Johnson, and Johnson, Reckitt, Nestle, Tanalee cow that see Nike and many more and stuff disappears and of course across multiple geographies.
And to give you a sense of the success in the Bakken Egypt during that week orders grew bored by more than 70% compared to the prior six week average with fashion beauty and FMCG.
Categories accounting more than 80% of the items sold.
So for US it was a very big success and a lot of friends experiencing experiencing triple digit volumes at least during the event.
This partnership with brands, but also with SMB sellers as well as our cross border say, others are extremely valuable to us and as the market place we want to create value of course for the consumers, but also for the sellers and we strive to give to our sellers the best possible experience and to give them a class.
Form to grow and to reach consumers effectively in Africa and it to also provide to those brands an expanding range of services to drive their performance.
Our second objective is to me a pace.
On page 15, you can see that the TV the <unk> the total payment volume of Jimmy a pay increase by 50%.
And that's the on platform penetration reached 26% we have doubled our penetration of June yet paid versus a year ago.
On the next slide page 16, you can see that the transactions have dramatic have increased by 6%.
And when you look at the growth of the transactions, which are above 10 euro and the growth of the transaction below 10 year old you can see what I was mentioning before that we have 90% growth of the transactions are both 10 Euro and that's the decline is excluded or is very concentrated.
Across a certain transactions, which are concentrated in air time, you can see also that the penetration on that for older basis is now at 34%.
And that comes out to about 31% a year ago.
Yeah, they as a as a reminder is light in eight markets, Nigeria, Egypt, moral cool, Ivory Coast, Ghana, Kenya, Tunisia and Uganda.
And.
Our goal for Jimmy a pain is to drive a very gradual expansion across geographies at this stage, but rather to it.
Enriched the value proposition and from your pay and dependent suffering.
On page 17, you have some more details on that.
As you know Jim you pay goes beyond digital payments and the checkout function. It serves on our platform. It has a dedicated digital services.
I would just call Jim you pay.
And it functions as a marketplace for financial services on the digital service out of the GMP ups, we offer a broad range of everyday services like Bill payments Air time, recharge ticketing entertainment and many more.
In Q3, we launched the pilot the junior games on the up across five countries. This is a partnership.
And and with Mondiale, which is the marketing and digital content distribution company and you make games is a subscription based service offering unlimited access to over 500 games, including in App purchase.
And this initiative aims at providing consumers with.
Varied range of digital services engaging experiences, while creating more payment use case for GMP.
On the Fintech sites.
We also consumers and sellers, an expanding range of financial services.
Provided by suffered top tier financial institutions in Q3, we launched the pilots.
Also prepaid physical and virtual card in Egypt in partnership with Mastercard, and a deep which is a leading bank in the middle East and North Africa region.
Our financial services marketplace helps us drive more financial inclusion, allowing consumers and SM used to access BTIG financial service in a convenient and safe manner.
I'll now hand over to one who will walk you through our financial performance and starting on page 19. Please.
Thank you Sasha.
Hello, everyone.
In parallel with driving usage, we continue to gradually money title platform.
You can pick it up at 28% year over your GMB construction Q3 2020.
Marketplace revenue increased by 19% and gross profit by 22% over the same period.
Adam draw that you say that you know we seek to gradually money tied that you say, who diversified revenue streams that absorbs a growing share of <unk> states.
Taking a closer look at old lives marketplace revenue stream on slide 20.
You see that commissions increased by 43% year over year due to an increase in the shale higher commission rate categories, including fashion beauty, Oh, it's empty D as well as lower promotional intensity.
Fulfillment revenue increased by 13% as a result of the continued shipping fees adjustment as well as pricing changes, we didn't know cross border logistics.
Buck or international shipping fees that were previously charged two centers, where instead passed on to consumers. This change resulted in some for international logistics, rather you to be recorded as fulfillment revenue instead of revenue from value added services.
That you had to tell it should increase by 4% as adjustment to our shipping field led to an increase in shipping contributions from local factors, which more than offset the effects of the pricing changes you know cross border logistics.
The management Ization pressure on all centered in a very disciplined manner and during the third quarter of Twentytwenty reduce pressure on the advertising front, leading to a decrease of 2% obese revenue stream, while black thing more focus on fulfillment cost pass through.
It is worth noting that we remain in early stages or meet acquisition driven.
Conditions improve pretty lumpy in which all the bread and butter off the marketplace.
Down from more than 70% of the market based revenue.
We intend to further diversify our revenue mix leveraging multiple winterization revenues, which all lovely and stopped due date.
The potential further Monday position, both on the pool E commerce marketplace, but also on the assets that's going to give the market blades digital payments and logistics in particular.
If we look at the core ecommerce marketplace.
The first phase of mineralization or what the boat, enabling transactions owning commissions and fulfillment fees in retail for facilitating the transaction.
We expect to grow these revenue lines, how do we drive more usage and the platform, but the next phase of equal Mersman dietitians about unlocking more growth for all centers and broader platform participants.
Value added services, such as training all content creation to marketing and advertising solutions and also data analytics full performance analysis and informed business decisions.
As we onboard more brands and.
An old base of their games in sophistication, we expect to see growing traction for these services.
They know and logistics story can be core infrastructure supporting the growth of the marketplace.
However, these assets have tremendous growth, but then drug in their own right beyond the scope of the ecommerce marketplace.
Jimmy update at digital services and financial services marketplace actually do you all very much in the early days today.
We see tremendous growth potential for commissions earned from these activities.
We grew more than say from the June yet they add and broaden Olympic services offering to both centres and consumers.
Good call digital payment asset Jimmy I think he's not money dice today, Oh payment brought that to date all in relation to junior ecommerce transactions.
We are working on offering junior they kick out to a mission to football to your guns and intent to extend into both digital and Oh flying payments in the future.
Last but not least julianna logistics supports two did you mean like almost transactions and we put the linker and you essentially to colder all fulfillment expense.
We have no launch the logistics as a service offering.
Well third party businesses can access the junior logistics platform to help them meet their delivery dates.
And I would like to give you more context and color on this initiative.
But you cannot forget all the all you can be challenging with multiple hurdles such as a lack of addresses.
Lack of organizing a reliable capacity.
Storage space issues.
I mean, Oh gosh on Devry until one.
With Jimmy Logistics, we have built the deck reach platform uniquely adapted to address these challenges.
We love Great. Your network of over 303rd Party logistics buffers that we manage to appropriate though that stack.
That allows us to have if we'd be doing the drilling of the package men at all fulfillment workflows and optimize delivery time to volume location and small grouping.
In Thailand.
We have an extensive network of elite physical locations, including order routing Stakes in every single country, where we operate and over 1300 consumer did dip stations and Randall drip of stations.
There's no placebo for third party businesses to access this platform for last mile delivery services.
And when he's been until this is including well thing picking and packing and last night.
We are very pleased to offer the services for logistics platform to thought may drill distribution thing points in Africa.
We hope this will serve as a catalyst to drive more trade in the countries, where we operate while generating more volume for the logistics, it's in that form powerful network.
Let's now turn to go up on day 24.
We are driving efficiencies across the food cost structure.
We are pleased to report yet another walking the show over to Rick <unk> gross profit after all from Finland expense, which reached 6.6 million euros.
Compared to a loss of 1.7 million in Q3 2019.
<unk> expense decreased by 20% in Q3, Twentytwenty compared to Q3 2019, as a result of operational enhancements across all logistics operations.
These included the optimization of all cross border she'd be metrics stuff got stadiums in our fulfillment centers and the channel Deli repricing mother from cost through package because first up.
In addition.
We are able to best on an increasing proportion of whole foods payment extends to the combination of consumers and centers, yeah, all fulfillment than video that services revenue streams, respectively.
That's true of our fulfillment expense measure that the ratio of who feel Knights led value added services revenue overall solution that expense increased from 58% in Q3 29 came up to 79% in two or three 2020.
Sales and advertising expense decreased by 55%.
13.8 million in Q3, 2019 to 6.2 million in Q3, 2020 its lowest level in more than three years.
All marketing efficiency metrics are showing strong improvement.
Katherine advertising expense per order decreased by 53% from two euros in Q3, 2019 0.9 for older into Threeq Twentytwenty.
Annual sale than advertising expense <unk> annual acupuncture <unk> decreased by 43%.
9.90 per and you're like your consumer to 5.6.
And sales on advertising as a percentage of Jim decreased but almost 200 basis points from 5.3% down to 3.3%.
Sufficient you all made possible by the strength of all Brendan.
Oh sure attributable to continued and then Smith to our performance marketing strategy across search and social media channels, Inc.
Including more run your old segmentation, a fourth target market with differentiated campaigns and content for each segment.
Finally, our third major focus area used technology and Ginny.
And we all know in meaningful improvements here as the rationalization that fault undertaken last late last year stopping though.
DNA expense, excluding SBC dropped below 20 million euros for the first time in nine quarters.
Gen expense, excluding SBQ reached 19.3 million euros down 24% you know all the yeah.
This was Balky are result of staff cost reductions and professional fees paid is largely attributable to the both pretty optimization and cost rationalization initiatives undertaken in late 19.
Moving onto the balance sheet and cash flow items, all that the profitability is further supported by our asset light business model.
Capex.
In Q3, Twentytwenty was less than out for me then the roads as we operate junior logistics as a platform with a very limited capex requirements.
Net change in working capital resulted in an infant formula in Europe supported by reducing inventory and told her with cyclical cycle.
Yes utilization was 27.2 million euros corresponding to a decrease in cash and cash equivalent or 42.1 million euros down 52% you know all the euro.
An exchange loss of 5.1 million euros, Oh Gosh, you would.
The 3.5 million euros net settlement expense.
Class actions will likely be the <unk> Boston to cough up Q4 Twentytwenty.
You may have nothing that we made the shelf filing Oh, yeah. This summer.
Following those two as you look to 18 million adss.
The course of the next three years.
We are making significant progress towards breakeven, which gives us more flexibility in terms of liquidity.
That said, we intend to take advantage of opportunities in the market dressed kept building the future to strengthen our balance sheet and further increase our flexibility.
Where's that I end the call back over to Sasha.
Thanks very much.
To conclude that said I would like to give you some perspective on on what how we see the achievement to date and where do we go from here.
Open the call by saying our strategy is a balance of four key pillars and that we manage this on a dynamic basis I think over the past 12 months, we drove the business in those four pillars with a sharp focus on profitability.
And we are.
In our opinion did having very strongly against that objective.
If you look on page 26, comparing our business for the first nine months of 2019 or 2020, I think it's very clear that it's working we have improved everywhere and a pretty significant Pete.
Only Jim he is down and this is not see by choice and as you have seen there lots of pockets of growth in our business and both in volume and value.
We now have a business mix the cost structure and fundamentals to support the long term profitable growth of junior and once again. This has been achieved without any volume surge or any particular tailwind. So it speaks to the quality of the underlying business.
And that makes us very confident about our path to profitability.
Now you may ask.
The question about why we are so focused on profitability right now and that we.
We wanted to remind you why we are so focused on profitability.
We think that.
Our business model is proven the success of companies like Medicare Libra, Alibaba Amazon I think there's not really any doubts about that.
Secondly.
The potential of Africa is huge there decades of growth ahead of us to drive the adoption of E commerce and payments.
Congress is very relevant in a continent, where distribution of goods and services are very challenging for all the sellers in your fine world. So I think on that.
There's not really any doubt either.
Brain I think over the years, we have proven that we can operationally overcome all the challenges and the challenges like payments logistics.
Building, a scalable marketplace of consumers and sellers and so having said all this the real only remaining point is to make sure that as the business scales. It is profitable.
And once this question Mark is behind Us.
We are going to be much more comfortable re accelerating the growth of the U.S age because we will know that the businesses in their rental you profitable and this is why we are so focused right now and they bring on this objective because this is pretty much. The only question Mark remaining and I think as you have seen in the Q3 results we are getting closer.
And closer.
And so what do we expect.
No until profitability is no longer a question Oh, we're going to continue to follow the exact same strategy, we're going to continue to bring you and milestones as we reach them and you can expect more of the same choices, meaning the balancing of selective growth with efficiency driving increased.
Monetization and cost efficiencies and all this while continuing to drive the penetration of junior pay.
And as soon as we achieve profitability then we can put more emphasis on acceleration of growth as well as some of the older policies, which are outside the current focus and that we remind you or we put here on page 29, once we reach the milestone of profitability, we can confident be start allocating.
More resources to growing faster or user base, putting more resources behind junior pay to accelerate in payment and fintech, putting more resources behind you me, a logistics and perhaps as a standalone company explore other avenues of growth like gaming digital content and geographical exposure.
<unk> and many more right. We think that we operate a very relevant business ecommerce would they need repayment logistics, we have proven that we can do it in Africa, we have built it as a platform able to scale and expense we operate an asset light company with.
Significant geographical and category diversification, we are very confident about the future and I think the reason recent results are very encouraging to us.
So with this in mind. Thank you very much for attending the call and we are now ready to open up for a few questions. Please.
We will begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone, if you're using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then too.
First question is from Ralph Schackart from William Blair. Please go ahead.
Good morning, I, you made some really good strides and logistics and marketing fulfillment expense.
<unk> expense decreased during the Q3, I think down by around 20, and 55% or so year over year, especially which is really great progress.
She talked about you know doing this in an environment without a surge in volume, but maybe just kind of taking a step back I'm, assuming there is not a I guess near term or outlook for a surge in volume where do you think you know further progress could go on this front you know do you really need a surge in volume to continue to get these really decrease strong decreases and expenses year over year, just maybe some more.
Color on this would be great. Thank you.
Yep, Thanks, Ralph or for the question and I think one of the one of the it's it's a very good question and we've kept repeating over the last two years as we as we became the process of going public that we were betting nothing any surge, but rather gradual you know and adoption of the E commerce.
In Africa and that all things considered you know we don't mean much to change to a two two to take the company to profitability, but we just need to continue doing what we're doing and I think if I looked about if I look at and where do we go from there I think from a unit economics improvement there's a lot that we can see.
He'll do to continue to increase them right and.
Number one there's no one else monetization avenues that we have and we are just starting to explore it and some of them that we have not even started to explore and those monetization avenues. They include our own ecosystem and even going outside the ecosystem right. So I think there's a lot we can do to.
Further increase the advertising services that we provide to sellers into football team and we have just started to open up Jimmy and logistics to sell properties and this is going to be a gradually increasing and contributing over the months to come.
We have not even started to monetize union pay at all we are not making any money on it on a payment service provider activities and so on so I think there's a lot that.
We're going to do and to increase revenues, even if you know with the same side of the business and secondly on the cost side of course, the cost and to some extent, we need volume to to drive meaningful improvement, but they're still look that a weekend due to you know to a tool to improve on the call. So the unit economics will come.
We need to improve regardless of the surge now I you know without a surge I think we're going to continue to grow and you know we have brought your son, some details and open the box for you to see where the growth is and we're very confident that there is a lot of growth in the business and that the growth is that where we want it to be.
And we are extremely confident of the relevance of the business model and that we're going to continue to grow and especially where we want it right. So there's going to be assembled teeny teeny bit we're going to keep bringing you. The the the situation and then is there was a surge then even better but we're not betting on it we're betting on the this.
I mean shouldn't be worried meaning that we're going to grow where we watch in selective areas, which are relevant to consumer lifetime value and bring them into our margins and as we do that and work on the monetization and cost efficiency I think we have a very good to a year ahead of us in very good position to to drive the business forward.
Thanks for the extra color Sasha.
The next question comes from Mark Mahaney from RBC. Please go ahead.
Thanks, Let me ask two questions. Please first the for the first time you had a decline in active.
Active customers sequentially I know, it's a trailing 12 month metro.
Metric, but could you talk about that and or is there something you can do to stabilize that is should we expect the customers to come down is that part of the rationalization are you trying to are you trying to shed unprofitable customers or is that something that you can reverse I assume that the goal would be to to grow active customers overtime. So just talk about.
What happened in the quarter over the last 12 months and in your confidence in your ability to grow that and then secondly, with one p. revenue and there's so much focus that you have on the marketplace business for understandable reasons better economics.
I think that there's a is it reasonable to assume that you'll just a flat out exit the one P E commerce market and just focus on the marketplace business. Thank you very much.
Thanks, Mark and I think very good questions too.
And.
Before I answer on the Q2 to Q3 active consumers I think it's important to remind that the that the active consumers or as you pointed out, but I want to make sure its clear for everyone or on an LTM basis. So those are the last 12 month active consumer so when we compare Q2 2020 in Q3 Twentytwenty we're comparing.
The last four quarters, so Q2 to Q to 19 to 20.
Two giuffre 19 to Q3 20, right. So there are lots of things that can happen in this metric and I think it's a it's quite a quite important to keep this in mind now of course I think when we look at Q2 and Q3.
We are seeing a trajectory where between your during Q3, we have continued to make a lot of progress on efficiency right. We have decreased our sales and advertising expense by about 14% between Q2 20, and Q3 20, we have increased our efficiency, if you're comparing last 12 months and two.
The active consumers, we have increased efficiency by 16% right between those two quarters. So I think you need to to keep this in mind to some extent. It's also a result of some of the choices, we are making and the under seal. These are typically there would be some of those consumers who we deem. It is true we observe that those consumers are.
You know on the reacting to promotions on air time, and things like that so it probably be similar as consumers have disappeared as as part of the you know our choice to only focus on really and you know positive consumer lifetime value consumers. So there's must be some of that and then I think we we don't expect this trend to.
And you're right overtime, we expect that the trend will continue to go up on that on this metric and we feel very confident about that as well then on one piece I don't think we will I'm not going to say never but I don't think we will in the years to come and stopped doing one Pete I think one P is a very attractive.
And possibility for us.
Because we operate in a market where.
The the supply can be sometimes a bullet Kyle and there can be very regular situations, which to which it's a very good advantage to be able to buy and sell right and we do one p. and we engage in one p. when we think that it's necessary or that is.
We know we can benefit from it and to drive the relevance of the marketplace for the consumers or when there is a shortage of supply or something like that and I can tell you. For example, right now we are running when preparing at black Black Black Friday, our commercial even as we speak and we always like to do a little bit.
Retail it helps and it drives a good good economy makes good margin and good relevance for the for the consumer. So certainly we're going to continue to be a majority market place I think but and we will still see someone gets a very good and efficient Ah you know the tool for us.
Okay. Thank you so much.
The next question comes from Aaron Kessler from Raymond James. Please go ahead.
Great. Thanks, guys a couple of questions first follow up on the last question.
Also I noticed average order value was down about five euros sequentially and I think it was about a similar level electronics to last quarters they could.
Good good and in fact in the average order value and then maybe on the advertising kind of how are you thinking about kind of the optimal level of advertising do you think you're at that today, maybe which channels are you more focused on as well going forward here and finally, just any any Q4 trends quarter to date trends you would point out as well thanks a lot.
And thanks, Alan on the advertising you mean on the expense right now than the revenue correct right or correct yeah yeah.
So he is the first is bringing us opening its something that we sold four right. The UI for us we see it as an output.
Of the U.S age of the consumers in our platform and its not something that we are necessarily a focused on trying to drive.
Higher or lower a movie right. We are focused on driving relevance and certainly we have been driving low dose the everyday categories, which have lower I tens value. So we were very much expecting this drop of avian something that we have been planning and but in a way we observed the more as an output of.
What people decide to buy and what the also I 10 and people decide to buy and the building is also a function of the number of items that people put in their basket.
And the price of this I can so there's just so many factors which go into the ASV that first we we observed view, we post rationalize it because of course or this is something that we look at but it's not something that we sold four and we don't have a particular goal our goal is that our consumers.
Our CRB consumer lifetime value their value is positive and that when they do orders those orders take us to profitability right. So I think you. He is what it is and it's moving in and you know in the right direction. According to us and it makes a lot of sense, but we don't sold for.
You know sort of political number and nor do we aim that's a particular number four for sure for the business [noise].
And on the advertising, we are primarily driving spend for the online and performance channel. It's a it's the majority of our spend and here is of course and makes a full of Oh, the existing channels and it's very diversified I would say and very granular, but it's a niche.
So some of the you know performance channels like App installs, and then Retargeting and and affiliate et cetera. So it's a lot of that I would say performance marketing channels very granular and very programmatic can and that performance driven and then we have.
The the next most significant is the Oh Fine Commission that we offer to our J Force program and people right. So remember from previous discussions we have a very a attractive Jay force program, where individual people can sign that and can.
Commissions and fees, Wendy and recruit new junior users and so we have this program pretty much flat in all our geographies and is very successful. So it's also a meaningful part of the advertising expense.
And we think that it's going to be too to continue being very granular being very diversified we are constantly.
Looking for ways to optimize and also looking for ways to to create new advertising channels for the users to to recruit new users.
He got into them now.
Last question is any Q to Q4 trends a finished product where an official guidance into Q4 trends because today.
Yeah, I'd say live in early two or two talking about that and then and we just launched a black Friday Black Friday for US is it actually is almost a full month of Oh said shopping festival and and so he started last Friday most of the countries and.
And it's an event, which is based on of course, there for Friday's, which which have the you know the bigger offers and bigger and bigger commercial events I would say, but it's something that that really builds and so it's it's a little bit too early to tell unfortunately.
Got it okay. That's helpful. Thank you.
The next question comes from Sarah Simon from Berenberg. Please go ahead.
Oh, Yes, hi, I've got three questions thoughts on on.
What do you think is the you know the right.
It's pretty stable cold, yes, that's DNA cost going up he didn't come down very significantly should we expect that keeps coming down or do you think we've kind of hit the right level.
Second question is if you look at T.N.V. and you've given a helpful submissive maple things coming down I see what that implies is that everything not my ball side and electronics is.
Got to slightly down too and I'm wondering if there are categories that did not let it be.
Particularly weak versus others that have been strong because he talked about race from great and delivery.
Talked about FMCG categories is greenstone into Paul.
And then the final question I. Appreciate you don't want to give any guidance on Q4 <unk>.
You started well, let's see we started to see in the numbers.
Significant shift towards selling profitable good <unk>.
Q4 last year so.
Is it reasonable to think that the rate of decline.
The rule, a G.M.B. should moderate in Q Oh.
Do you think that's still more.
Shifting away from high priced good.
Okay. Thanks.
Yeah, Thanks, IRA and I wish.
I wish you know I wish we had a crystal ball in a way that or you know that we could but I think this one then the last question the guidance. It's a it's very hard to to to tell I agree with you that the comps should become more favorable with time and we initiated the business makes rebalancing really about a year.
Oh and of course, I mean, not everything happened overnight right or as you can imagine and it's more like a phase of the business and and there. There's so much volatility in in the market right now in terms of ER and supply disruption and.
Also to some extent we start to see the first you know impact of probably economy crisis and the consumer behavior.
And ER and so it's it's very hard to predict what we can say is that I think there's a lot of growth in the business and he may not always come from the same pockets that there's a lot of momentum.
On many aspects of the business. So you know it's hard to tell if we're going to see more of the same or if it's going to started being being more favorable on a consolidated basis, it's really hard to tell unfortunately, but I think you know we're going to have to see where we're where this goes but we will continue to bring you also.
Yeah.
The breakdown of the business. So that you can see where its going where it's not and that we are able to to explain it and and that is also the speaking to your question number two and the granularity of the growth of the business is of course, when you de averaged to the GMB outside phone in electronics and you would have noticed.
Are you at the mid of different categories, and you have a lot of different dynamics, which are taking place by by price points by subcategories and so if the need is there you have some sub categories, which are growing faster, some which are growing and you know.
That's foster even shrinking a year over year I think it's also hard to always to look at the year over year, because one or two then you know explain the dynamic of such and such category about a year ago and how it's changed such and so I think we see that there is a general dynamics around.
Lower I 10 value more profitable orders more profitable consumers and that it's hard to just categorize. Okay. We are going on a b C. D category and we're not done a b C. D. I think the general trend is that we are growing outside funds and electronics and and unfunded clinics, we are not growing because we're driving the shared.
Now and that's a you know that's that's that's it for now then.
Then on its DNA.
I think to some extent.
We need to if you look at the trajectory of hedging you can see that we have managed to really I would say protect almost protect investment that we bring into technology.
And that we have managed side, so you know cutting.
Lotus there the overheads to really keep investing in our technology, because we think it's a it's for the long term and it's very important to drive the future monetization and efficiency ahead of US and then the rest. So currently the focus for us is going to be on on you know.
More of the growth of the U.S age group of the monetization and union pay rather than further cutting the ginnie right. So there maybe some some improvements here and there, but I think it's fair to think that for us. The focus is going to be on continuing to grow the gross profit after fulfillment.
And to do that by continuing to improve the economy and and continuing to improve the growth in the selected areas.
And rather than continuing to 'cause DNA, because I think you know, it's a better it's a better it's a better ROI to to continue to grow the business and an increase in the comics rather than continuing to either so I think maybe some modest reduction maybe some other countries, but have you got.
Okay perfect. Thanks.
The next question comes from Brian Nowak from Morgan Stanley. Please go ahead.
Hi, This is Matt on for Brian. Thanks for taking the question is there any material divergence in your largest countries, where you're performing better than others and if so what differentiates us countries. Thanks.
Yep.
As no. The answer is no and so we are you know seeing some differences here and there you know when you put side by side of course, the that you need to kind of make the category mix and et cetera, et cetera, but overall, it's a it's very consistent I would say.
And generally very consistent and I think that's something that we are we are happy about also because the the good results that we see are not driven by by one country. They are really driven by all of them. So in the portfolio you have some countries, which are going a bit more than others are being more profitable than others. It.
Try, but I think it's a it's a it's pretty consistent.
The next question comes from Katherine O'neill from Citi. Please go ahead.
Hi, I just had a question on the logistics side of it and I just want to understand how you think about capacity have.
And so for that without impacting the coal business and how actively you locked inside of it and how should we think about the size of the opportunity.
Yeah, I think the size of the opportunity is I think enormous right and.
I say that because we know when we started that business eight years ago, we were dreaming of finding a junior logistic [laughter] right and we built junior logistics of course, because in a way we had to we had no choice right and if they had been they're extremely efficient fulfillment to ecosystem.
Where we could have told our sellers just sort of dropped your package and and they will take care of everything then.
We would have leverage that right. So we had to create this and it's been very very big investment from us in terms of resources in terms of technology in terms of the time and I think now we habits and down this assets I think it you know it's.
Very very sizable change because we have we think we have a very unique system. We have a very unique system, which provides end to end visibility.
Reliance or reliability solely and cost and attractiveness to every single Sn. He was he needs to move goods from from eight to be so.
I don't know exactly the size, but it's I think it's extremely sizable.
And with that in mind, we are really in the phase where we have successfully piloted the service in multiple countries. When they say piloted it means that we have had a few hundred you know consumers will consistently and regularly shipped packages with us and we think that we are now ready to scale and that we are going to gradually.
We'll go out and start to you know pitching this service to consumers, it's a sellers two S M.
And and just scaling and the reason that which they come to us. So certainly you know we will never compromise the junior business in case, there is a trade off to be made and we will limit the capacity if we have to.
And and we will see how it's coming in the next few months and as we start to market. The service right. So it's something which for US is the is a very good addition to to a two to the business and where we're not going to market did very aggressively were going to go out and we're going to as we.
Do as we always do with because her two of the 200 consumers war regular consumers consistent than than we continue to scale as we see that the business is creating value for them.
And certainly we don't see an issue of capacity for for you know in the near future I means we would have to believe that there is a huge surge in demand too to do that and as I said, we we don't believe in search we believe in a in gradual changes.
Okay. Thanks can I don't think stuff can tend to kind of warehouse capacity.
I think he noticed I think would abandon 10000 glad okay.
<unk>.
How how do you expect that to evolve over the next sort of two to three years.
What kind of investment is acquired and Alaska stay that.
Yeah, just here in the next couple of years.
Yeah, it's it's generally going to increase the treaty gradually right and the warehouse space is does not require much capex because they were warehouse space is dedicated to the storage and pick and pack and the two you know consolidation of packages and.
Basically it coming in and out of packages right. So in a way. It's it's 20, a pretty simple to scale, we need to so I expect that we're going to increase gradually here and there, but no meaningful change in capex or or investment to to to do it because it's a it's really storage space.
And and shelf. So it's it's nothing that requires the investment and and we are always Brent those bases. So there's no big or big change here that we expect in the next TV in the next two years I would say.
Okay.
The next question comes from Lamont Williams from Stifel. Please go ahead.
Hi, So as you bring down your I pod advertising costs, what are you seeing and the customer acquisition costs is that coming down as you leverage more of the brand and then is there anything you can give us in terms of how you're thinking about the timeline to Jimmy a pay monetization.
Yeah, they're good questions. So same we see pretty much the same trends on the customer acquisition costs.
And that does not all good marketing efficiency a metric. So this one is following the same direction and and so were also happy with that and confident with that on the Jimmy I think many times. They can we are almost there to start probably pilot thing.
Jimmy I pay as a as a payment service provider. So this is something that should take place in the near future and we expect that we can piloted in the next few quarters right. So definitely we want to piloted next year and then I.
I don't think its going to become meaningful in our revenues in the next two or three quarters, but we certainly want to at least pilots that are you know in the next few quarters.
Okay, great. Thank you.
There are no more questions in the queue.
This concludes our question and answer session I'd like to turn the conference back over to Sasha for any closing remarks.
Great. Thank you so much everyone I think we're over the hour. So really appreciate you joining thanks for the support and as always we are available. If you have any questions and we wish you the very best take care everyone.
The question excuse me. The conference is now concluded. Thank you for attending today's presentation you may now disconnect.
Oh.
[music].