Q4 2020 ContextLogic Inc Earnings Call
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Good day, ladies and gentlemen, and thank you for standing by welcome to the wishes of fourth quarter and full year of 2020 conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask the question. During the session you will need to press. The Star then one of your telephone keypad.
If you require any further assistance. Please press Star then zero at this time I would like to turn the conference over to your host Mr. Dennis Walsh, Vice President of Investor Relations. Thank you Sir please begin.
Thank you Howard and good afternoon, and welcome everyone. Joining me today to discuss our results are wishes founder and CEO, Peter shall Jackie and CFO Raj fiery during.
During the call we will make forward looking statements about our future plans and financial performance. Although we believe the expectations reflected in the forward looking statements are reasonable we cannot guarantee. These results. These statements are subject to risks uncertainties and assumptions if the risks materialize our assumptions.
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Peter I think you can start.
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Sounds good hoping we get Dennis back.
Hi. This is so we undertake no obligation to and do not intend to update these statements as a result of new information or further events, except as required by law. This call is being broadcast on the Internet and is accessible on our Investor Relations website. The recording of the call will be available later today during the call, we will discuss GAAP and non-GAAP measures, including adjusted EBITDA, which we refer to as EBITDA.
And free cash flow, we encourage you to read our earnings news release, which can be found on the Investor Relations website and as filed with the SEC as it contains important information about our GAAP and non-GAAP results, including reconciliation of the historical non-GAAP.
We will now open the call up with brief remarks, and then we will take your questions and with that I'll turn the call over to Peter.
Thank you Dennis glad we got you back and welcome everyone to our first ever earnings call for those of the whole participated in the IPO. We are thankful for your support for the team at wish building a world class E Commerce platform and revolutionizing mobile shopping is no small task. So I would like to commend you all for your hard work and continued dedication to our mission forever.
We look forward to sharing our journey with you.
I would like to start with a few highlights that we are proud of from the fourth quarter. We completed our IPO in December raising approximately $1 $1 billion, which will be used to support scaling our business and fund future growth opportunities fourth quarter revenue of $794 million was the record high for the company and grew 38% year over year driven by increased demand for a mark.
Placement of logistics services, our logistics business is gaining strong traction with revenue increasing 193 per cent year over year in Q4 as merchant adoption accelerated importantly, our average time to the door had been dramatically reduce worldwide, resulting in lower refund rates and the better consumer experience and a day.
We are seeing significant improvements in retention transfer of recent cohort reversing the downward pressure caused by the pandemic related logistics challenges in Q2, and Q3 of last year, which is the merchant advertising platform product boost the <unk>.
Back nicely from the slowdown last year when the pandemic intensified worldwide. The recovery has continued into Q1 at the merchants returned to more normal like marketing expense, which local scanning.
And now we have more than 50000 stores and of our network and its first full year since launch in late 2019 waste of local accounted for more than six per cent of total orders in Q4 and reached approximately 25 per cent of total orders in some countries. We continue to innovate in Washington.
Further enhance the consumer experience from the wished platform, including of Daily suite takes the reward and engaged loyal customers translation of product information to more than 40 languages improved time to adult estimates and live chat support and finally, we on boarded many new brands with merchants, including the rule of law and Tracfone wireless.
You can see we accomplished a lot of Q4 and ended at challenging year on the high low but we are just getting started in 2020, we face more headwinds during the pandemic than other ecommerce companies given our global supply chain and the customer base with earning power has been most impacted by global Lockdowns.
The more proud of our team for delivering 34% year over year revenue growth as the vaccine rollout shutdowns Eve and our customers are able to start getting back to what I expect 2021 to be another strong growth year for wished and I'm excited about the opportunities ahead.
What was the kick off today's call by outlining our priorities to better serve our customers all of our merchants and our partners for 'twenty 'twenty, one and beyond.
When we launched wish we wanted to bring an affordable and entertaining mobile shopping experience to billions of consumers around the world for a substantial number of consumers price is the most important when making a purchase we estimate that there are over 1 billion households worldwide with income of less than $75000, excluding China and India. We believe many of these consumers are not yet shopping.
In line and we are committed to bringing an affordable and entertaining online shopping experience at the segment of the market.
The value conscious consumer segment of consumers in mind, we develop the highly personalized discovery based mobile shopping experience. The similar popular social media apps and made rich highly engaging with game of five features we are democratizing e-commerce about making our platform affordable open and accessible to all of our team is relentlessly focused on.
Product advancing technology, enhancing the consumer experience and leveraging data science and the plethora of data and customer insights from over 100 million monthly active users across more than 100 countries.
What should the data driven company and our focus is always on the efficient growth and attractive long term unit economics of such one of our key priorities is to increase the lifetime value of our customers, which is data science capabilities provide us with a unique competitive advantage and are core to our business operations, our proprietary algorithms analyze the rich dataset of trans.
And historical behaviors to drive continuous optimization and from key business decision.
And maximize the return on marketing investment we leveraged the stayed at the deploy dynamic pricing for better monetization of our user base I'm, especially proud of the progress we made in Q4 to increase the lifetime value of our customers you can see the impact reflected in the significant growth in Q4 core marketplace revenue per active buyer, which increased 66% year over year.
And 25% sequentially over Q3.
<unk> was built to empower merchants around the world and as of today, we have partner with more than 550000 merchants.
Actually grew our platform focused on China based merchants that specialize in selling quality of branded products at highly competitive prices overtime, we have been diversifying into new geographies. Since 2019, we increased merchant partnerships in North America, Europe, and Latin America by 362 per cent and the U S alone we grew the merchant partner.
435 per cent last year and now five out of the top 10 sellers on the wished platform are U S base.
We're also sort of diversify the type of merchants in the network with a more comprehensive catalog of product categories and more branded and higher ticket items, we can capture a larger share of consumer wallet and increase customer order frequency. We are prioritizing, adding the more merchants that sell consumer goods and branded products last year, we increased transactions from brands like asos.
Lenovo Oriental trading and Toshiba to name a few.
<unk> merchant partners of cost efficient access to our global user base scaled data and technology platform. Many don't have it on like price and are struggling to compete with lots of commerce platforms, which at the indispensable services, including demand generation of engagement data insight logistics.
The migration tools and support help merchants run their businesses and drive sales. We aim to further enhance the value of our platform by adding new services to support.
Wishes and pricing of logistics services have been particularly successful additions.
Merchants utilized product books of advertising to more prominently feature of the products within the use of T. We leverage state of size to optimize AD placement target high lifetime value of users and maximize the merchants. The return on AD spend we have also developed a proprietary logistics plot from foreign merchants.
Traditional ecommerce is heavily reliant on capital expenditures to build the warehouse and logistics infrastructure.
I wish we grew our logistics revenue by 275 per cent year over year from $137 million in 2019.
$2 million in 2020.
The wide capex with the new zero.
We are building relationships of the best third party logistics providers around the world and leveraging our technology to provide a seamless shopping experience to customers and merchants. All the time, we aim to turn out of logistics services into a profit center for wish.
Longer term, we will lever of our taking a lot of them.
Sorry to extend our platform to the entire E. Commerce ecosystem, we have tools like dynamic pricing of customer acquisition engine and logistics that can be extended beyond the current wished platform. We took our first steps towards opening up our platform in Q4, while lunching logistics of the service for non wish merchants in select geographies. It's the.
The early day for the pilot, but I expect this offering to start significantly contributing to our growth over time.
In 2019, we launched wish local to help brick and mortar stores drive online sales and connect with the global audience. Today, we are driving adoption by incentivizing customers to pick up low value orders of local partner of merchant locations, which essentially serve as the wish fulfillment centers, we are leveraging our logistics platform to drive shipping efficiencies, including Bunge.
The multiple low value orders together for shipment to which local stores, where they will be stored for customer pickup in Italy, and Mexico. Approximately 25 per cent of old Q4 orders were shipped two of which local store for pickup indicating that there was the large unmet demand for this type of service.
We made great progress from 2020, but in 2020. One I expect we will further accelerate awareness and adoption of wish local at the world gradually comes out of Lockdowns.
Establishing a massive local warehousing and fulfillment footprint worldwide without having to own any real estate at scale. We can ship high frequency order products, such as consumer goods. The dislocations in bulk and then offer a more cost effective buy online pick up in store option for customers that will drive increased shipping efficiencies for us and improve customer order frequency and retention.
In summary, our <unk>.
I already sort of the next several years of clear first leverage the data advantage provided to us by our marketplace of more than hundreds of million users and hundreds of thousands of merchants to continue driving efficient customer acquisition monetization and expansion of categories.
Second.
Optimizing our asset light logistics infrastructure to reduce delivery times and improve our customer experience third continue to scale of wished local to provide local retailers, where the competitive supply chain and our customers with cost effective high frequency products, which will in turn improve consumer retention and force as we build scale across our core capabilities make more of our <unk>.
Services available to non wished merchant, including logistics type of service.
As you can tell we're excited about both our near and long from opportunities to grow our business and expand our offerings. We have a decade of experience building innovative e-commerce products, a large and growing user base of global network of merchant partners and of data advantage to drive ambitious growth in launching new initiatives the opportunity for wishes matches I hope you join us.
Many of the revolutionized the mobile e-commerce experience.
I will now turn the call over to Roger.
Thank you Peter.
Note that some metrics, we discuss maybe on the non-GAAP basis.
A reconciliation of GAAP to non-GAAP results can be found in the early do you believe Mitch can be found on our Investor Relations website and as filed with the SEC.
2020, we grew revenue by 34% year over year to $2 $5 billion driven by increased market place in logistics revenue while the.
The full year net loss of $745 million and adjusted EBITDA loss was $217 million compared to net loss of under $29 million.
Adjusted EBITDA loss of $127 million in 2019.
Looking specifically at Q4 revenue was $794 million, which.
Which increased 38% year over year, driven by higher marketplace and logistics revenue flow.
Third quarter 2020, net loss was $569 million and adjusted EBITDA loss for the quarter was $180 million.
Compared to a net loss of $124 million and.
Adjusted EBITDA loss of $116 million in Q4 of 2019.
As the result of IPO in late December we incurred significant stock based compensation expenses and employer related payroll taxes, which totaled $389 million.
$398 million of Q4, and full year 2020, respectively.
Before I get into the details of our results I wanted to provide a quick overview of vessels business model.
The business model relies on cost effectively adding new users and vertical of users in Dubai and improvement improving engagement and monetization of the bias on the best nightclub overtime.
In addition, we added new margin delivering economic success of those margin and providing them with additional business solution.
Our financial benefit of model benefits from strong revenue diversification, including commissions revenue dynamic pricing product boots and logistics revenue.
The market net revenue consists of core marketplace and part of it grew seven years of core market net includes revenues from commissions and dynamic pricing and accounted for roughly 72% of total revenue in 2020.
The user base of global and provides diversification and scale of the full year 2020, 46% of core market with revenue of some European uses 40% of us from North America, and 5% from South America with the remainder of coming from the rest of the world.
The other portion of the market. The revenue comes from the product boost advertising services, which accounted for 8% of total revenue in 2020.
The remaining 20% of total revenue from our logistics services.
We have significant operating leverage that allows us to optimize growth and margin expansion.
Sales and marketing of calls part of the majority of our operating expenses, but we expect it to steadily decrease as a percentage of revenue over time.
Other expenses, including product development of G&A at historically low single digit percentage of revenue and we expect to maintain current expenses at the level.
We have improved our adjusted EBITDA margin from negative 30 per se because of 62 negative 9% in 2020 and expect to continue generating margin expansion at the time.
Our customers cohort because of its consistent behavior of the repeat customers spending more with us each year.
Light and lean operating model gives us the ability to manage and drive growth.
Profitability in real time.
With that as background, let's dive into other adults for the fourth quarter of you talked in 'twenty.
During Q4 total revenue increased 38 person year over year to a record 794 million of them.
Within total revenue core market this revenue increased 24%.
You have to do it.
$527 million from Q4, and exploration from 17% year over year of growth in Q3.
The market growth rate is expected to further accelerate in Q1 of 2021.
All of the product boosts revenue declined 24% year over year to $62 million.
It increased 27% sequentially from the Frac water.
The uncertainty created by the pandemic towards.
The 20th caused some headwinds from product boost as many motion scaled back the advertising budgets. However, during Q4 and continuing into Q1, we saw merchants the return to more normalized advertising spending and we expect to see year over year growth and sort of boost revenue throughout 2021.
Q4 logistics revenue was $205 million on a non <unk> 93 per cent yogurt.
The increase the significant increase was driven by the accelerated motion adoption as well as the expansion of our Eplex program, and which manages the plus my collection from merchants to warehousing operations, all the way to last mile delivery to the buyer.
Moving on to use of the metric at virtually all of the aspire to grow out of the best efficiently with the focus on high LTV customers.
We ended 2020 with more than 107 million monthly active users or <unk>, an increase of 19% year over year. In addition, LTM active buyers of increased 5% year over year of $64 million.
During the holiday season, we decided to deemphasize customer acquisition in some emerging markets outside of Europe, and North America, where we faced the logistical challenges due to the pandemic that resulted in unfavorable unit economics and the customer experience that did not meet that standard.
This decision that when the Mou decline of 10% year over year in Q4 EBITDA.
We expect to reemphasize these markets as we continue to improve our logistics and for the rollout of average local offering.
And our main market, we know that our customers of disposal proportionate of impacted by the effects of the pandemic, leaving many with less discretionary income could be most effective of the advertising approach when it began the emphasizing higher LTV customers at the same value conscious when people look at it day for example, we entered.
I think the rising increased average order value by encouraging other items at checkout and generating budgeting intent by featuring higher ticket items within the feed which ultimately drives more revenue and cost efficiencies.
The recent cohort of customers that require to have a higher LTV, which is reflected in the stronger Q4 core marketplace revenue per active buyer increase of 66%.
Year over year, and 25% sequentially in fact, we reduced the portion of total orders that were $3 of net by 17 point in Q4 of this year much of last year.
We plan to Reengage these customers in select emerging markets. When we have more certain we can deliver a stronger consumer experience.
Scanning, which normally is the element of that strategy. The successful krish local emerging market like Mexico and it leaves the service the playbook of how we provide lots of pushes it lumpy in store pickup options for customers in the emerging markets.
Now turning to our costs and expenses for the water all of the measures at all of our non-GAAP with the top 20 as they exclude stock based compensation and related expenses.
Cost of revenue for the fourth quarter of 2020 of US 300 of $6 million, an increase of 63 per cent year over year. The increase in cost of revenue was primarily due to costs related to higher volume of logistics services.
Q4, gross profit was $480 million up 26% from Q4 of 2019.
Gross margin declined on a year over basis.
61% of revenue due to higher mix from logistics.
As the logistics business begins to achieve the scale and product ex boost exploration, we expect the drive steady growth margin expansion overtime with the long term target of 70% to 75% revenue.
We continue to demonstrate operating leverage fourth quarter sales and marketing expense was 70% revenue compared to 81% revenue in Q4 2009.
The full year sales and marketing as a percent of revenue of 66%, an 11 point improvement compared with 77 percentage of revenue in 2019.
Longer term, we are targeting sales and marketing expense to be 40% to 45% revenue.
Fourth quarter development, and G&A expenses as a percent of revenue remain in line with a low single digit range.
Which ended 2020 with the solid cash position of $2 billion in cash and cash equivalents and free cash flow of almost breakeven at negative two minutes.
We maintain a highly capital efficient business, we don't want any warehousing of the production facilities and maintain a minimum amount of inventory in fact cumulative cash flow from operations over the last five years was positive $13 million.
While we scaled our revenue from $445 million in 2016 to $2 5 billion in 2020.
Moving to our outlook and introducing revenue and adjusted EBITDA.
Well the first quarter of 2021, we expect revenue in.
In the range of $735 million to $750 million out.
Out of 67 270 per cent year over year increase.
In addition to core market of the revenue we expect the high margin product revenue to return to year over year of growth in Q1.
We also expect the investments building of logistics platform will hit.
Flexion point during the first quarter in terms of improving the customer experience, increasing efficiencies and further reducing the other standard zone.
It's important to note that Q1 of the D&A.
It's actually saltwater since the competitive one of 2020 was impacted by effects of Covid pandemic license of Italy.
We typically experience a sequential declaration of Mou and revenue during the first quarter of as many channel based merchants temporarily limit the operations around the strength on a yearly basis, our revenue growth irrespective of the snowfall in Q1 last day, we experienced significant revenue growth during the second quarter of customers are increasingly shopping with e-commerce platform as the pandemic intensified the cros.
Most of the World and our logistics services became operations again, China. Therefore, we expect you to the tough year over year comparison, and will return to a more normalized growth.
A few things.
Throughout 2021 will remain focus on the efficiency efficiently growing our user base of higher LTV customers. They didn't go the highest CPM from the debit platform. We are confident that investing in our growth at this time is the right decision strategically in fact, we are already seeing positive thing the signal.
Signals and retention trend from the newest user cohorts will also make investments and expand it to expand with local scale of logistics platform and take steps to of launching new revenue opportunities.
Our growth initiatives the plan to significantly increase the head count this year the top industrial debt.
We ended 2020 with only 875 employees worldwide. We have right. We are proud of our employee efficiency and productivity, which is reflected in other generating $2 $9 million of revenue per employee in 2020, which we believe the among the best employee productivity in the e-commerce industry.
Our strategic investments I expect it to the highest during the first and fourth quarter of the year. As the result, we expect Q1 adjusted EBITDA loss to be in the range of $85 million to $80 million, while the negative trends in the 11% revenue longer term, we continue to target and what the adjusted EBITDA margin in the range of Arctic One third of your question.
Overall, we are very pleased with our 2020 performance I'm, even more excited about the momentum heading into 2021, we look forward to updating you on our progress throughout the year with that operator, we're ready for the first question. Thank you.
Yeah.
Ladies and gentlemen, if you are of a question of my comment at this time. Please press Star then one on your telephone keypad. If your question has been answered or you wish to remove yourself from the queue simply press the pound key.
In order to facilitate as many participants as possible. We ask that you. Please limit yourself to one question and one follow up if you have additional questions you may rejoin the queue.
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Our first question the comment comes from the line of Doug Anmuth from Jpmorgan. Your line is open.
Great. Thanks for taking the questions one for Raj on for Peter.
Rajeev you mentioned they may use declined 10% year over year in the quarter, just hoping you could talk more about the pullback that you did on advertising and customer acquisition and some of those emerging markets and how we should think about the timing.
As you bring that back on and then.
For for Peter the Ah <unk>.
Significantly reduced.
The average time door to door can you help quantify that at all perhaps in relation to what you saw kind of two two and three Q and then what kind of confidence do you have the things have normalized.
And how should we expect that the run going forward. Thanks.
So Doug let me take the first question.
So as I mentioned.
No like the countries like.
These emerging market the case, the delivery was significantly large and well just well, it's not right to invest in the businesses.
If the country must John what's the point of investing so leave me.
All of the decline was driven by countries like India, India, Philippines, Colombia from Brazil.
All of those countries every day.
Now what we're seeing is that reached the local works very well in these markets like in Mexico, 25% of the oddest the original.
And also the logistics are now running fairly normal in those countries the back to historical low level. So we would expect that.
In the next three to six months, we expect two of game engage with the market.
And get those <unk> back.
So hopefully that answers your questions with that I'll, let Peter answer the second question.
Yeah.
Thanks, Doug this is <unk>.
Peter.
The first and foremost really proud of all of the improvements.
Of the reduce it will be full time to door of delivery times and the corresponding reliability, adding last mile tracking over the back half of 2021 of our core markets.
Three weeks the sort of average CD worldwide is at an all time low.
In the U S customers can often get items in under a week as we have more and more locally stored supply. So this is indicated by and.
Orange truck icon and the use of seed.
And we're always striving to do better. So we will continue towards improving the average T D and the cut.
From experience overall in the future it's.
It's also important to remember that.
Based on a large survey of roughly 3000 customers that we conducted last year, we found that approximately 75% of our customers prioritize the price of an item over both Brent and delivery times.
All of our typical customer.
It might not actually be able to afford items in other platforms.
And pay for memberships.
In order to get speedier delivery.
And then on top of that I think it's also important to remember is which local oh all of the all the work that we're doing in terms of the pick up from store now or pick up from store later will help increase or improve our time to reduce it even further because customers will be able to ship to a local store for pickup and.
And we will also for the high frequency items stored these items send it in bulk to do our store partners and allow for a pickup of essentially in the day of our our real time and on top of that we spoke of will help us diversify our.
Product categories.
Such as consumer goods.
And and make fulfillment, both speedier and much more cost effective the puppy that answers your question, but that I think we're ready for a follow up or the next question.
Thank you both.
Thank you. Our next question or comment comes from the line of Justin Post from Bank of America. Your line is open.
Great a couple more questions on users and then maybe I'll follow up. So you mentioned you may use.
Emerging markets were down what do they look like in the U S and Europe and then in your prepared remarks, you mentioned the cohorts.
Early cohort data has improved can you give us more specifics on what you're seeing there.
Hey, Justin FX effect for the question. So this is Peter.
So I think I'll just make a couple of comments on any of your decline in all of that sort of Raj discussed the other components of the question I think sort of overall.
The almost substantially all of the decline came from the emerging markets as Raj mentioned I think it's still important to remember that full year of 2020, and they use actually grew 19% year over year.
And now let the rocks of the address that.
The other aspects of the question in terms of the cohort behavior or any additional comments. He has on any of you.
Yeah, and even in the western markets, what we did.
Well as we focus as I mentioned on higher LTV customers, because we felt that people who want to buy zero to $3 worth of items. It's just not cost efficient for us. So we pick more of the high LTV.
Users and buyers.
And as I mentioned, our revenue per buyer was actually up 66% last year because of.
Focusing on those type of users who is the somebody who just wants to buy one.
Three $3 items, so that was actually a very positive shift and hence if you look at the gross margins they were much better than expected because of that shift.
In terms of retention trends I would say they are almost approaching.
We saw a big decline middle of last year, when not shipping delays happen significantly the day two delivery almost doubled.
And we're almost back to pre dose levels. So those are the encouraging now we've got two months three months of data we are watching those trends, but it's pretty obvious debt when logistics of improved so much a refund rates are down significantly.
People have lost my the tracking its a much better experience for our consumers right now it's probably one of the best experience that you had in our history actually at this point of time for our consumers. So yeah. We're encouraged but we will have the won't have more confident.
We have two more months under our bad debt.
Great. Thanks, maybe one follow up because I know, you'll get questions modeling <unk> going to be a challenge for everyone and just kind of think about how to do that where would you go back to pre 18, and 19 levels and look at things sequentially or any other comments you could maybe help us when we think about.
<unk>.
Yes. Thank you.
You can look at history for other guidance still expected growth in Q2 in spite of the huge Q2 that we saw last year.
I think the revenue sequentially went up like 6% to 70% last year Q2 to Q1.
So we still.
Expect growth in Q2, but it will be a much more moderated growth.
Because of some of the tough year over year comparison that we saw.
The external factors obviously the.
Stimulus coming in again argue the value parts of consumables have been hurt the most.
How does that play into it.
Cautiously walking that.
Unemployment again getting better again, our consumers have been hooked up one of them more than the pandemic the value of buses from BMO.
All of those things will come into play, but I won't.
The more moderated and the growth in Q2, and then starting from Q4, we come through again, good strong double digit growth day in the back half of the year.
Thanks, that's helpful. I appreciate it.
Thank you. Our next question the comment comes from the line of Jason <unk> from Oppenheimer. Your line is open.
Yeah.
Some of this too so maybe first.
I think the gross margin came in a bit worse than we were all expecting even though kind of revenue was better. So just maybe talk about some of the dynamics there because I think it's all of the marketplace and logistics exceeded.
By about the same amount. So just if there is something underlying there and then secondly, you made a comment in the core in the letter about the logistics because of service for non wished members in select geographies.
You can share and kind of maybe when you would think that could start to have an impact on the model in a more meaningful way. Thank you.
Yes, Thanks, Steve.
I'll, let I'll, let Roger address the the first part of the question on gross margin.
So on gross margin I think you have to look at the excluding SBC expense stock based expense on the Apple to Apple lot of it is actually came like 400 basis points better than what we expected and what we are.
Supporting the growth margin was actually better because the booth with the the 100% growth.
Smartphone business will get better than what we expected for the marketplace.
Also been better so I think you might be looking at.
Expenses the net.
With that and look at the apples to apples exactly did better than what we expected.
I like the answer the second question.
Yep.
This is Peter Jason.
Look on the logistics of the service.
Look ultimately we feel that for ourselves we've solved.
A much more efficient and effective cross border logistics platform.
For really transactions and merchants merchants transacting on within our marketplace and our proprietary platform provides merchants with a unique ability to actually bundled orders, which drive significant efficiencies.
Especially as over the last three four years of cross border logistics has become.
A lot less efficient and especially for a single items lower order value transactions and then on top of that I wish local network allows customers to pick up and order in store and allows us to ship multiple customer orders together to be warehouse in the stores. So we're bundling 5000 hundred and 5200.
Orders.
For.
Many many many household customers.
And using a single shipment.
As you can imagine that drive.
Much greater efficiencies versus shipping all of these individual items of 200 times of them 200 separate airplanes clearing customs.
And ultimately doing last mile delivery.
Which we think is going to become more and more expensive overtime and our consumer segment of the value conscious consumers are going to be looking towards solutions, where they can save.
A bunch of of what is a lot of money to them to them.
Taking a little bit of time out of their day and pick up these orders from stores.
So overall, we've created this strong.
<unk> season, and higher reliability and effectiveness and we look forward to passing off the solutions to transactions and merchants that may not necessarily be transacting within our marketplace and again I think it's too early to sort of share of any results on the pilot, but we are very encouraged by the early signals and we will continue to.
The two.
The boat and scale this up even for transactions and merchants that aren't necessarily of participating within the wished marketplace framework.
Thank you.
Thank you. Our next question the comment comes from the line of Kunal <unk> from Deutsche Bank. Your line is open.
Hi, Thanks for taking the questions a couple of front of me one with regards to shipping and been the shipping coming back to normal.
The our shipping delays that are happening on the shipping side, where people are using ocean freight and the car.
The going up significantly are you seeing anything with regard to like you know costs or other things of that kind of kind of all run into into air shipping, which is what you use and the been on the local side, if you're getting to about 25 per cent of the orders that are being delivered through the local.
What point do you pull the trigger and you say Hey, you know what this market. This is good enough of the volume of orders, especially is good enough with the should start trying.
It should.
For the local stores.
Thank you.
Thanks Kunal.
This is Peter so in terms of shifting coming back to normal obviously with actually passenger air flights being still somewhat reduced globally.
Especially the two went from China.
This is largely baked in in terms of the cost increases now.
We use the ocean freight and very limited capacity. It's typically two fan forward deployed inventory into the stores. So it will be available for pick up immediately that still are running out of low relatively low scale, but almost everything we do is airfreight.
When it comes to when it comes to the cross border of orders.
But in terms of all of the pricing increases you have to remember that with our the cost efficiencies that we gained from bundling even sort of per household.
And incentivize your customers to buy more items per order by higher order.
All of your items.
We've largely sort of baked in dose the.
The cost increases.
In terms of which local select geographies, where we're seeing up to and exceeding sort of 25 per cent of orders that are being ordered for pick up from store. These are typically sort of.
Either emerging markets or more of the sort of a.
Poor regions of the world. So we actually see this as.
A huge opportunity for us to expand into more emerging markets, whether it's completely new markets that we'd never.
Of the scale, then or scale up sort of existing emerging markets, where this seems to resonate really well with both the customers who tend to be more value conscious and the actual brick and mortar stores, which can get access to unique inventory and the ability to actually drive traffic into stores.
Yes.
Thank you.
Thank you current.
Next question the comment comes from the line of Nick Jones from Citi. Your line is open.
Great. Thanks for taking the questions I guess, one on a follow up on the wish local with 25%, Mexico in Italy, and I think 6% total and maybe following up on some of your commentary on awareness of successful overtime, what what percent.
Should we think about you know.
Being shipped to.
Wished local locations and I guess can you give any color on kind of what the frequency is for those who engage with the wish local as opposed to just getting of delivered to their home.
Yeah. Thank you Nick so so this is Peter.
Look it's one of the fastest growing initiatives that we've ever launched in terms of older volume. Despite the fact that a lot of the stores of the lot of these regions are still under some some version of Lockdowns.
And obviously less willingness of of Sop.
People customers due to sort of venture out outside and she can shop in stores. So if you kind of look at the situation currently wished locals about 75, 7% of.
The volume, but it's rising quickly and again some markets will be better suited for wished local than others as mentioned, Italy, and Mexico already see 25% of the other is being shipped to our wish local store partners for four of pickup and we see that the massive opportunity.
After a decade of year after year record of store closures, ending wish 'twenty, 'twenty, which was a disaster for small and medium size businesses and with small and medium size businesses, making up 90% of all enterprises globally. We believe that wish local will be an extremely attractive partnership opportunity for many of these businesses.
And as we continue to build out all of which local offering.
Where we think we're able to position our products and the highest density areas. The city areas. So that we can reach users faster and cheaper.
And I don't think we are sharing any outlook in terms of what wished local will look like long term.
But all indications are that it would be even though it's early that this will take up a one of a larger share of the order volume.
Two presents new opportunities in terms of other.
Of the types of services, we can provide to the stores and three will be a great tool to leverage for for expanding.
Geos that sort.
Additionally has been challenging to.
To drop ship and to bolster sort of if you look at the emerging markets. They have is sort of the dairy fixed logistics infrastructure capacity, if you exceed that of the.
The customer experience get substantially worse from the current perspective, and we think that what we're seeing with Italy, and Mexico and in other regions.
Locals potentially and the amazing.
The fact, the solution to get a larger share of those of those markets.
Great. Thank you.
Thank you. Our next question or comment comes from the line of Eric Sheridan from UBS. Your line is open.
So maybe following up on some of the questions from the call already but just putting up the pivot to the margin side of the equation, how should we think about the investments building as we move through.
The next sort of through the four quarters and how should investors think about the yield on the other side of those investments whether its faster user growth higher shopping velocity, you're better conversion of traffic that would be the other side of some of the investments.
So we could think about some of the leverage beyond just the next couple of quarters. Thanks, So much guys.
Yes.
In terms of investment the way, we're looking at it is with the improving retention trends and consumer experience.
So thats one level of investment, which wouldn't have but at the payback and high rise of EBIT buyers in.
I think strategically the right thing to do for the business.
Lee this local as the as you know some countries of becoming twenty-five herself.
We want to invest behind that.
And generally of head count.
The initiatives that we are pursuing new revenue opportunities we still have.
800 people in the company generating $2 5 billion in revenue. So those are the three levels of things, we think we should be investing in the business.
And so that's what we're thinking about it hopefully that answers your question.
Yeah.
Thank you. Our next question the comment comes from the line of Stephen Ju from Credit Suisse. Your line is open.
Okay. Thank you. So Peter can you talk about the types of sellers, who are adding outside of China, and what type of merchandize they might be specializing in.
And I guess subsequently what has the reaction been from the consumers is the same faster part of your revenue growth or the consumers still primarily.
Reacting best to the unbranded merchandise and Raj I guess.
If you can give us some more color on the logistics investments of seemed like based on Peter's comments earlier, when you talk about reducing average time. The door are you talking about reducing debt door to door transit time for the developed markets or are you talking primarily about those regions of the world that still remain.
At an elevated level versus say.
Of the United States. Thank you.
Thanks, Steven this is Peter.
So with respect to non of a.
Branded merchants just.
Just sort of various ways of we categorize the east it could be sort of non Asia based merchants of non China based merchants. There's also obviously a branded merchandise.
So all of our focus is always on value conscious consumers and building a world class of affordable and entertaining consumer experience forward for that segment.
The market.
However, you know where are we seeing the most the traction.
In terms of new merchant partnerships as I mentioned, if we just look at year over year 2020 over of over 2019 in North America, Latin America, and Europe, We grew our merchant partnerships like 362 per cent and in the U S alone. We grew U S based merchant partnerships like 435 per cent.
And and on top of that you know as I mentioned earlier five out of the top 10 sellers on the wished platform are U S based and the sellers for the most part of our selling into U S customers only so even though they're selling into you know roughly let's call. It a third of our consumer consumer base day.
We are you know five out of the top 10 sellers on the west by growth sales. So that's where we're seeing a lot of traction that's where we're seeing new incremental inventory that's unique and different from what was the available before and that's why these merchants are having a lot of success the categories, where we're having a lot of success is obviously the bigger ticket items.
Some of it still in the sort of closeout liquidation of inventories segment.
Furbished segment, but it's almost across all different types of categories, whether it's higher ticket price electronics stern.
Furniture or home decor et cetera, and we will continue to do to sort of build out seek and build all of those partnerships not just in the U S and Europe, but also in places like like Latin America, and we will continue to see.
Try to add more affordable inventory, where wherever we can find it Raj I'm not sure. If you want to handle the part about the logistics.
Yes sure.
So let me just clarify by saying low to low deliveries at record low levels pretty much by now.
Everywhere, even in the emerging markets, but they are in terms of re engaging the customers I think there'll be two parts of the way one is like the country, you probably lost quite a bit of users.
We would experiment in luxury in countries like India, Philippines, Colombia, or do we have the ddos sales than we were just waiting and seeing if we can make that work that may be a strategy that works well with the base local and because with local and Mexico with you. It's been very successful. So we may go after those markets by leveraging our vast local platform.
And another emerging markets like Brazil, where our base of deliveries all of the game. It maybe the traditional rock so it'll be a mix of strategies, depending upon which emerging market.
Market, we engage them because of the data we already have a good infrastructure, we may leverage the traditional drop ship model and maybe with local but in some countries in the mid just purely Jewish local so we'll talk more about it but that's how we would go and.
Engagement those countries in the next few months.
Thank you.
Thank you. Our next question of comment comes from the line of Jon Block, which from Cowen. Your line is open.
Great. Thanks, two questions first on the core marketplace revenue. It was a much better than we expected just curious what drove the upside of that line was it a dynamic pricing or was it the commissions on higher <unk> per customer or a mix of both and my second question on one of which local kind of what are you.
What are you seeing with your active buyers that are using wish local are they buying more frequently or are they buying more categories and any kind of color. There would be helpful. Thank you.
In the already being the first one of you can do the second one.
Yes sure.
So on the terms of hallmark of Mis revenue yes.
Elevated the there's much better than we expected debt.
And what we.
Thinking of possibly because our strategy of talk about focusing on.
Higher LTV buyer, we know these guys to be buyers.
Thank you buy more they buy more expensive products in the.
The relative.
Our products and we can optimize margin with these <unk>.
Buyer much better just based on how they behave on the platform so to the mixture of all of those three things.
Just targeting the buyer.
Having been by more items, and then also using dynamic pricing on those items.
That's what led to a better revenue per buyer and better core marketplace revenue.
And we think the strategy work very well so far in the queue.
Our Q1 as I said growth rate.
The marketplace would even be better than what we saw in Q4.
Maybe you can comment with the frequency of orders that were seeing on wix logo.
Sure Yeah.
So again, which local.
Clearly resonating strongly with our with our customer base.
And with our store partners.
As well.
I don't think we're ready to share anything on the.
How does this actually affect the cohort behavior.
And also there's a little bit of a selection bias there because we're the only picking out regions geographies neighborhoods, where we do have strong performance in terms of active buyers and transaction volume.
So it becomes a little bit tricky I guess, what I can say is we firmly believe that this is a huge competitive advantage.
Of fulfillment cost and when it comes of forward deployed inventory for the high frequency of order products.
It also allows us to provide our customers the option to pick up from store and real time day of within the next hour within the next 15 minutes et cetera.
And on top of that.
We are getting the wish local stores to upload the inventory within the stores, we're not charging for the Seattle is still relatively early.
But that allows us to sell categories, where we've been traditionally weakened whether it's consumer products or maybe even even grocery or something along those lines. So we are seeing sort of strong adoption.
And resonates with our customers in terms of which local and in some geos.
It's obviously resonating quite nicely but.
But I don't think we're ready to comment or it's probably too early to comment on how the types of effects of cohort behavior, but it is one of our core long term strategies not just not just to have the much.
Much more efficient cost up to some of the solution for value conscious consumers, who are willing to make that trade off a little bit of inconvenience time, the save a little bit of money, but also create new opportunities to cause that you opened the top part of our logistics of the service program.
To help other merchants.
The other platforms with these cost efficiencies.
And healthy brick and mortar stores in other ways in terms of understanding demand dynamic pricing customer acquisition.
Really.
Understanding their understanding of securing their their inventory as well so I think.
Is it something that will be of long term investments per really long time, we're happy where we're at with the progress that we've made and how well, it's resonating with customers and our business partners and we will continue to make investments there.
Thank you.
Thank you. Our next question the comment comes from the line of Laura Champine from Loop capital. Your line is open.
Thanks for taking my question I appreciate the information on on <unk>.
LTM active buyers at $64 million, but what was the active buyer count in Q4.
We haven't disclosed quarterly we have disclosed as the environment and we continue to do that and you can do your math and figure that out overtime, but typically we have disclosed in our S. One and thats, what we will disclose.
Okay, I'll, let take the data.
They have a lot of they were sequentially up Q4 to Q3.
Got it thank you.
When we think about the markets that you called out that negatively impacted the May you, India, Philippines, Colombia, and your efforts to step up wished local to help meet demand there how long will that take and can you give us more details on your plans there.
Yes, Thanks, Laura this is Peter.
So there.
Raj kind of touched upon this we need to find the right commercial solutions.
To get products and in bulk.
Whether it's a tick.
Pick up from store and two or three weeks from now.
Which are bundled up 5100, 150, maybe 200 items per package or forward deploying inventory that we know will sell out of high frequency and does it kind of in those regions.
So this is something that we're working on I think for quite a while we've been playing defense on the logistics side of it.
Decelerated by what happened during during the pandemic with our especially given our supply chain.
Concentrated in Asia.
And where our consumers are concentrated in Europe, and North America, we have to focus on that we feel we largely solved those problems, we now have better performance and greater efficiencies.
The <unk> than anyone else doing this type of cross border dropped you think whats local obviously absent those efficiencies significantly.
But we're still you know kind of 850% of company.
We obviously had raised a lot of funding during the IPO, which will deploy to accelerate these efforts.
I agree with you what we're seeing in places like Mexico, Italy more of sort of value conscious oriented consumer segment.
Local is of great opportunity and.
And we will be carefully choosing in places, where we expand these offerings to what scale.
And finding the right partners to help us accelerate it.
Got it thank you.
Thank you our next.
The question or comment comes from the line of Ralph <unk> from William Blair. Your line is open.
Good afternoon, you talked about reducing lower ALG items during the quarter during the prepared remarks.
Just curious if this is more of a shorter term oriented strategy of strategy intend to keep focusing on more of a longer term basis.
The follow up question is just curious how sustainable do you see the core marketplace revenue per active buyer levels that were pretty high this quarter as more of your emerging market buyers start to come back on line. Thank you.
Yes, thanks, Ralph so I'll address sort of.
The first part of the question.
Yeah, so with with the changes in the logistics cost.
Cross border. It just does not make sense for us to ship individual items sort of subsidy dollars. It it's not an effective strategy for our business.
So what we've done is we incentivize our customers.
To actually make larger purchases.
Whether it's the especially in terms of number of items per order are higher which correlates with higher order values. So that we can bundle these orders.
And and really take the benefits of greater cost efficiencies of pending.
Items into one package versus versus of these needs of items individually. That's why out of the 90 per cent of logistics shipments that we now control in one way or another.
About 50% of those we basically control fully leveraging all of the data all of the partners. We have in everything that we understand from the performance and and and.
We shouldn't see perspective.
But the core strategy. So if you kind of think about we're still focused on value conscious consumer segment, but if you kind of visualize the bell curve of.
Those like lets say under 100000 in annual household income of something along those lines, we've probably for two reasons.
We shifted from maybe sub 30, K 30 kind of year or something because of the most value conscious consumer segment within that broader value conscious consumer segment.
Who would come in and buy of $3 item.
That's no longer sort of viable anymore. So we have shifted kind of towards the right of the distribution of still focused on value conscious consumer segments, but probably once that aren't affected as much by dependent.
And half are able to sort of joined the platform by 234 of five items at a time.
And incur the the greater sort of cost savings from that due to logistics.
The efficiency our strategy to bring back the most value conscious consumers that would.
Prior to the common by you know of $3 item that was maybe $2 in shipping now it might be a.
A lot more expensive than shipping.
What our strategy there is if we actually bundled those orders for pick up in store, we will have better efficiencies for those customers than ever.
If they're willing to actually go and pick it up from the start and we think they will be because again. He said the most value conscious consumers. So wished of local there's again, a key part of the strategy to get those customers back.
So hopefully that answers that I'll, let raj of trash the sort of core marketplace revenue trends as.
Well, yes.
So I think up the core marketplace revenue trend I expect to be staying in the same level.
There could be of mix implication are we may get more buyers in core market in emerging markets. We have net revenue per bottle to your point, but at the same time cost of acquisition of those buys us a lot cheaper. So we all of this focus on you know the payback and the NPV and so of course of that that'll be okay.
As long as that that equation works.
So we look at it really by country by country and look at those metrics and the is it worth going.
The reason, we got out of those markets at least for Q4 was because of that equation, what's not working because the bid.
The sticks was causing heavy journey, so there's no point investing windows.
So.
We will go off of this countries. Once we have stable customer experience and revenue per buyer will be lower in those countries, but so will be the CAC.
Great. Thanks, Peter Thanks Raj.
Thanks.
Thank you.
I'm showing no additional questions in the queue at this time I'd like to turn the conference back over to Mr. Peter.
Peter for any closing remarks.
Thank you everyone for joining us today, we look forward to speaking with you again in May for our Q1 results announcement.
Ladies and gentlemen, thank you for participating in today's conference. This concludes the program you may now disconnect everyone have a wonderful day.
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Yes.
Okay.
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