Q3 2021 Ozon Holdings PLC Earnings Call
Welcome to Awesome third quarter 2021 results call at this time all participants are in a listen only mode. After the speaker presentation. There will be a question and answer session to ask a question. During the session you will need to press star one on your telephone 50 advised today's conference is being recorded I would now like.
Honda Covid soaps your first speaker today, Maria fares, NEVA, Mike and IRA head of Investor Relations. Please go ahead.
Okay.
Good afternoon, everyone and welcome to announce third quarter 2021 results call. Today's presenters are <unk>, Chief Executive officer, He's out there show game.
<unk> operating officer, Daniel President and Chief Financial Officer.
Yes.
During the call, we'll share our comprehensive strategic business and operational highlights and discuss the financial performance for the third quarter.
This will be followed by a Q&A session in which you're welcome to ask your questions.
You can also find a copy of our earnings release and presentation.
IR website.
Before I pass the floor to our management I would like to advise you that some of the information you will hear today may include forward looking statements under the private Securities Litigation Reform Act.
Forward looking statements are based on management's beliefs assumptions and information currently available and are subject to known and unknown risks and uncertainties many of which maybe beyond our control actual results may differ materially.
We encourage you to refer to the cautionary statements contained in the company's press release issued today and our SEC filings.
During today's call the company will be referring to certain smaller for us financial measures and other metrics.
A reconciliation and definition of which you can find the Companys press release published today.
And now with great pleasure, our cost are forced to establish all D C. All over China.
Thank you Maria good.
Hello, everyone and welcome to <unk> third quarter 2021 coding schools.
Allison on key highlights for the performance and then Danielle Fugere will discuss marketplace dynamics and our financials in more detail.
We're very happy to report our best quarter with the kind of JV or there is effected by us until our numbers in our history, resulting in stronger almost across all core business and the articles.
<unk> Q2, 'twenty to 'twenty. One we also achieved an improvement continuing to come in the EBITDA as a percentage of JV on a like for like basis, which is really important for us.
Now let me provide you with a few operational highlights.
Our core equipment business, we saw strong momentum in Zambia growth supported by outstanding bias until a bed expansion and the big step up in engagement with the platform.
Zandi because services increased 2.5 times compared to Q3 2020 supported by the record growth in number of orders up 239% year on year.
There's a number of virus exceeded $21 million and number of active sellers reached six months all of them.
Both show and stellar year on year growth.
Well an inflection in demand for online services since the start of COVID-19, pandemic, we ramped up investments and made huge progress in the first such expansion.
Our infrastructure increased 2.5 times year on year, and our last mile network nearly doubled.
The infrastructure expansion allows us to provide best in class service for buyers and sellers with 98% on time delivery and greater shelf orders can deliver the same or next day.
With greater proximity to consumer our strategy of shifting to a high frequency model is bearing fruit and this is reflected in stronger cohorts during the third quarter, our different verticals make tremendous progress, which gives us confidence in their scalability and significant potential for creating the value for it wasn't growth.
Russian retail market is worth $500 million and represents a huge opportunity in terms of e-commerce.
With a strong market fundamentals and GDP per capita internet and mobile penetration is because the growth in e-commerce penetration, which is currently half of where it should be.
This and other markets with similar.
We have inflation.
The ecommerce penetration is expected to exceed 20%. We then total retail by 2025.
Commerce market growth by 29% when compared with annual growth rate basis until 'twenty to 'twenty five.
And we aim to be the key driving force of this transformational offline to online shift.
By focusing on high frequency model. We believe we are deploying the right strategy to win the market.
Furthermore, we are expanding our total addressable market by entering new geographies, such as Belarus and Kazakhstan.
Thank you see awesome growth accelerated and rejoined the triple digit territory region, 145% year over year <unk> growth was boosted by a record high year on year order growth of 269%.
On the back of a big improvement in order frequency by 50% as well as an extremely strong growth in the customer base up nearly 90% year on year.
The uptick in frequency is a testimony to our progress towards that high frequency model.
<unk> has already become a go to destination for more than 21 to 81 million Bucks.
Our customers enjoy the widest multi category assortment on the market, along with convenient and reliable delivery, which endurance translates into step up in purchase frequency.
It wasn't a financial services provide buyers and sellers with a comprehensive suite of digital financial services and insurance Frictionless shopping experience when it comes to transact in Orlando and off platform.
After acquisition of a banking license will continue to build our PCB and <unk> payments and lending business in North Dakota.
Thanks Brent.
Although of course, our flagship consumer payments product.
Tremendous performance with over $1 6 million cards issued.
Awesome cardholders transact, 60% more frequently on our platform.
Within our <unk> stream I would like to highlight our flexible payment plan product, which is gaining a lot of traction and it is very popular with our seller community.
More than 5000 sellers leveraged this product.
To enhance the guest management improve working capital profile and scale their OLED business with ozone faster.
After will lay a foundation this year, we'll have a solid product pipeline for the next 12 months, we plan to share the updates with you on a wide array of Fintech products that are currently under development.
Last year, we started to scale. It was all express our quick commerce vertical which enables us to achieve higher shut in fragrances.
<unk> accelerates our over our last mile and allows us to tap into one of the largest grocery markets in Europe.
<unk> delivered first offering resonates incredibly well with the box.
After piloting this vertical in 2000 <unk>, we started to scale. This year, we're encouraged by the results as the more mature dark stores are bracing for more than 12 months, which show much better unit economics.
Over the last few months, we expanded this business reported on areas in the regions outside of Moscow and St. Pete.
We opened new dark stores in Central Russia for example, and fit.
And in this house.
And just on the.
In addition to 20000 branded Skus, we expanded the selection without one private level and launched already two if neil's corporate.
Did that first footprint more than doubled quarter on quarter and exceeded 60000 square meters by the end of Q3.
We believe this is a very attractive segment with a huge total addressable market of nearly $250 billion and less than 1% ecommerce penetration.
We see enormous enormous opportunity for ozone and this segment. So far we have barely scratched the surface and we believe in our ability to execute and penetrate this market.
To sum up we had a tremendous quarter with J&J growth accelerating to 145% in Q3.
We achieved an incredible JV growth of 123% in the first nine months and had a strong start to Q4.
Trading during the high season is progressing well with a record 6 billion <unk> generated.
And the Singles' day on November 11, and 5000 for the 10 minutes left on the platform during the peak hours.
Given our strong performance here today, we are raising our guidance to 120% <unk> growth in 2021 compared to last year.
Now I will pass it over to Daniel who will elaborate on the operational performance and dynamics in the marketplace.
Thank you Alexander Hello, everyone I will provide you with a few comments on the company's growth results.
The operational updates.
Now, let's look at 5% growth.
JV and 239% growth in orders in Q3 is a phenomenal result, even company has scaled and quite calm space of Q3s when it's when.
We're very focused on excellence in execution.
And the best customer experience for all users of our platform.
Sellers and logistics partners.
I'll just assortment best in class fulfillment and logistics infrastructure exhibited some buyers and sellers to enable us to expand platform user base and drive high engagement of mentioned flywheel effect.
I will mention base increased by three six times in the last year.
Notwithstanding the growth in the merchant base to almost 60000 contributed to the rising share of marketplace patients, 6% to 7% of JV.
Let us appreciate access to 21 million customer base variety of fulfillment and delivery options.
It was on proprietary on market and business analytics tools help sellers to make more informed decisions about their business plans.
Understand market landscape.
Our advertising and instruments and financial services assist sellers and scaling the business cluster. Our cross border business is on global has also gained traction as of now we have over 6000 tons of national business.
Selling their goods on our platform and so variety and choice in Q3 221, we also launched a sole proprietor sales.
On our platform that should encourage more entrepreneurs to join the platform and start doing business with us, especially in <unk>.
So portland, making it more attractive to buyers.
And in fact I was on the assortment increased five times between Q3, it's one it's one and the 301 into 'twenty one.
And his own patent loafers and by this assortment across multiple categories head and shoulders above core competitors.
More choice and more availability, coupled with more convenience brings more customers to the platform.
As a matter of fact during Q3 years on the tracks is approximately 1 million new active users per month.
As a result, we sort of positive $20 million milestone in active buyers switches, 8% to 7% more than a year ago.
Observe increases in frequency and engagement of all buyers across categories, our offering resonates with shoppers, which translates to <unk> purchase.
Frequency increased by 50% year on year, reaching seven five orders per year.
But that's the average number.
For cohort showed great progress quarter on quarter, but this is still way behind our ambitious long term targets.
However, as indication of what progress we can achieve I'll give you some illustration, our most loyal audience, which places orders at least once a week increased nearly 2 million customers.
But this year versus around 5000 500000.
A year ago.
Information into high frequency model is coupled with a marginal contraction of average order value.
More frequently but they believe that lower basket size.
We believe that this model is more sustainable in the long term as it is a great alone.
Four months of cohorts and high customer lifetime value.
Key drivers of order frequency growth.
Our strong assortment growth and the visibility.
Inquiries and proximity to customers through expansion of pickup points network most of it by services such as premium subscription and our just in verticals such as express delivery and Fintech solutions, such as the buy now pay later.
Sure.
But also the share insights into our cohort performance.
Although it continues to improve proximity to customers through network expansion build better products and develop new products and services to enhance <unk> and <unk>.
Seamless demand greater convenience and high quality of service.
In one stops.
We emerged as the go to destination for online shopping for Russian consumers today as long as the most recognizable ecommerce brand among Russian marketplaces based on consumer feedback our top of mind share increased dramatically.
And in 19, and continuing to go from strength to strength outpacing our peers.
As a result, we are seeing more and more consumers choosing auto in the zone versus other marketplaces.
All mobile app user audience.
Then doubled year on year exhibiting the highest pace of growth amongst U S based on third party data.
But what has been amazing amongst both for both for new and existing cohorts, we believe our obsessional, where customer experience is contributing to the growth in buyers.
Great retention as well as a great order frequency.
What are the composition chart shows that at recent cohorts contributed substantial part before as those new cohorts show high repetitious rates, because it gives us confidence that our customer proposition keeps improving.
Improving cohorts productivity things that give us confidence that focusing on our high frequency commerce is the right strategy long term.
Although this would be impossible without having a solid logistics backbone.
Fulfillment and logistics is the bedrock of our loans E Commerce business.
As it enables those answer handle rapidly rising volume supporters huge assortment as well as ultra pasta delivery.
It was all expanded this total warehouse capacity by over 150% year on year, our total warehouse space exceeded 700.
Square meters.
Last quarter marked the largest increase in our footprint.
And the history.
Our offline pickup locations almost doubled since the year end.
With greater proximity to consume our strategy of shifting to Patrick with some model is bad and fruit with order frequency to double in the last three years. Furthermore, our infrastructure enabled us to reach a great milestone.
More than 1 million parcel shipped per day of which 98% of steadily delivered some time.
Last but not the least the infrastructure expansion in Q3 prepares us for in demand and trading during the high season, delivering on our growth guidance for 2020 one.
Positioning us for strong growth since when it's when and soon.
And I'm also pleased to say that we have secured over 80% of new space planned for opening during 2020.
All of this should translate into the Mercer cohort performance and boost order frequencies for years to come.
Before I turn over to financial performance discussion with eager to a few words on our international expansion continues to scale is typically when the company is now present in Belarus, and Kazakhstan during Q3, 2020. One was only launched a sorting center north of us there.
More than 3000, unbranded offline deep applications, where you can collect our orders and just last week, we launched branded franchising of pickup points in Belarus, which we believe can replicate the success of the model as seen in Russia.
Although it is gaining popularity fasteners sales in Belarus have grown by approximately 10 times since the beginning of the year. The sales of the sales of sellers from Belarus, Autozone increased five times since March 21.
With this I would like to hand over to you to get US some of who will discuss further our financial performance.
Thank you Danielle.
I will share some insights into our Q3 financials.
Our platform generated JV, including services of 108 billion or $1 5 billion.
This means four four times increase Capex for Q3 2020.
Quarter on quarter, what made great progress.
On the JV accelerates, an impressive 145% year over year compared to 94%.
But also on my list that deliver both improvement in underlying EBITDA on a like for like basis.
This was primarily driven.
The improvements in gross profit margin and marketing expense as a percentage of JV.
So it gives you more of the drivers of gross profit and margin improvement.
As I say it with you in August in Q3, we started to optimize the price investments within our multi business, which ramped up during Q2 FY 'twenty one.
As a result of this effort, we achieved better gross margins in Q3 compared to Q2 FY 'twenty one.
The like for like methodology.
As discussed in August we're also focused on optimization of our marketing expense.
And to increase efficiency.
Having negative impact on the customer acquisition.
The result is encouraging in my view.
Marketing and sales expense decreased to 6% of JV in Q3, 2021 versus Q2.
Yes, our customer base grew faster in Q3 up.
87% year over year Capex of approximately 80% a very strong rates for the last seven quarters.
This achievement was somewhat offset by the rising cost pressure from our record infrastructure expansion.
We have increased our warehouse capacity by one six slides Q on Q in preparation for the high season is the next leg of growth in 2022.
To sum up underlying EBITDA calculated on a like for like basis, and excluding one off.
It corresponds to nine 6% as a percentage of JV and carefully.
This represents an improvement of 70 basis points in Q3 vessels schizo.
Next slide shows the dynamic in our operating expenses at the aggregate level.
The increase is.
Elevated by JV and orders growth as well as some five times growth in infrastructure year over year, as well as strategic investments into new verticals and products.
Operating expense also reflects the cost of transformation.
Higher frequency model.
A few points I would like to highlight on this slide.
Our marketing expense increased due to.
Concentrated efforts around customer acquisition, which really paid off year over year.
I'd like to remind you that our marketing expense includes costs associated with cut processing, which in place this cost line.
Despite all of this were achieved greater marketing efficiency, where sales and marketing expense as a percentage of JV declining 6% in Q3 2021 compared to six 4% in Q4 <unk>.
So all in all of our technology.
The increase Q on Q can be largely attributed to a one off expenditure all R&D, which I have mentioned.
As well as yourself components, which doesn't impact EBITDA.
Finally, I would like to note that G&A was impacted by a noncash sub components, which increased substantially both year over year and pure Q because of the new grants and share price appreciation.
Our contract that's driven by our transition for high frequency model.
This transition is part of our strategy.
We're seeing increasing loyalty and rising interest rates with customers engaging in buying across all categories.
Our business and the economy more sustainable and less dependence on the category mix in the future.
This produces however, temporary cost pressure on our bottom line.
But we can already say with confidence that basis paying off and will result in higher JV per buyer.
And therefore, it is diluting our cost per order basis, which I will comment on the next slide.
Higher revenue per user increases our events all customer acquisition costs.
I know <unk> highlighted for you.
But I would like to mention this once again and draw your attention to the tremendous order growth and growth, which achieved between Q3 this year and Q3 last year.
This number of orders nearly quadruple <unk> $56 million of orders in Q3 compared to $17 million last year.
We have delivered one of the strongest orders growth in the industry, which is one of the key volume metrics showing ultimate commitment of our buyers and sellers. So all our platforms.
Based on available in orders is positively impacting the dynamics of cost growth.
Namely fulfillment and delivery cost per order, while down from 393 robust product in Q3 2020 for 330 <unk> per order.
In the space of 12 months, despite $4 five price increase.
Warehousing capacity.
Sales and marketing costs went down from 144 in Q3 2021 for 116 portable spill rather in Q3.
It went down from 144 in Q3 of 2020, so about 116 for this product in Q3 2021.
This means is that we were able to reduce marketing cost per order.
<unk> nearly doubling active user base.
With further OIBDA growth and continued improvements in frequency that is wrong.
Caused dilution on per order basis, and better unit economics.
Lastly.
Our cash flow dynamics cash.
Cash outflow from operating activities.
It was minus <unk> <unk>.
<unk> dollars 1 billion rubles, our working capital dynamics.
Favorable our capital expenditure amounted so.
$4 6 billion rubles, as we progress with plans infrastructure launches.
Thank you for your attention and let us move now to Q&A session.
Thank you we will now begin the question and answer session.
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One to ask a question.
The first question comes from the line of Slava.
Okay got it please ask your question.
Yes. Thank you very much for the presentation couple of questions from my side. So firstly, if you can elaborate on the competitive moat that you have created on the side of the high frequency.
Versus what is available at the market currently from your competitors.
Did you see a material difference in frequency between the capital cities and regions.
And maybe secondly, you also mentioned you secured 80% of the targets fulfillment space for the next year.
Can you roughly come months, what does the fulfillment capacity addition, youre looking for compared to this year and Directionally would you expect GNP growth next year to outpace the growth in the fulfillment space.
Thank you.
Thank you for your question on flower, let me begin and probably some questions kind of follow up.
Frequent shifts what we see is.
We have one of the strongest orders growth in the whole ecommerce market in Russia.
And I believe that many of our competitors still have a relatively inflated average order values, which means that one of the key drivers behind their JV is electronics.
Meaning they're going forward, probably it will be diluted once they move towards other categories.
Proceed with expansion.
Lola electronics.
Also I'd like to mention that.
The RASM basis.
Growth remains very strong as well.
Products' standpoints of.
But I would like to have growth metrics.
Say that our growth probably is.
One of the best but based on the information which is available to us.
On the fulfillment capacity.
So.
Yes, as we have previously shared with you where amesville almost level overall fulfillment capacity on year over year basis.
And part of the infrastructure expansion would be attributable.
So first months of 'twenty 'twenty, so as well as other.
To support the orders growth because we're setting a higher bar for us effectively.
However, we cannot produce any exact targets or guidance.
I guess, we will share with your updated guidance on 2020, so by the time relief our CFO.
Yes.
Yes, let me if I can add.
The frequency look I think.
What we really focus on and I think we excel.
And we have a best in class.
The performance is.
First highlight very basic stuff, which is difficult to advertise and brand.
But it's actually the most important well first of all we have.
Super good coverage of our customers.
So and with our last mile network.
So our last mile network proximity to customers.
That's one second.
We have.
No.
We manage availability of goods and localization of stock and pay a lot of attention there, which means that actually it's not like in proximity of just last mile networks also the proximity of goods, which means that delivery time is narrower.
And on top of that we of course.
We focused a lot on fintech.
Premium subscription.
<unk>.
And in Fintech will have over $1 6 million was on card issuance and.
We will also have a good progress with our premium subscription.
And we see that those who use that product there.
Frequency is improving.
Bethany.
And on top of that.
<unk> of course is express delivery.
Which.
The different how are the other guys are doing but we're seeing it's actually the one of the fastest growing eagle.
<unk> groceries in the market.
We also see a huge engagement and from customers and.
The express delivery is gaining pace and improve frequency quite dramatically.
Looking versus the regions as you asked.
I think the share of high frequency buyers is high in Moscow.
And particularly because of express.
At the same time, if you look at different layers of your customers.
Looking by frequency actually they have a lot of customers doing weekly orders in all cities.
He is actually to have a full human here. So that you can actually supply an extra two day delivery.
Okay. Thank you very much.
Thank you. Your next question comes from the line of Miriam <unk> of Morgan Stanley. Please ask your question.
Great. Thanks, everyone.
Question I was actually just on the ozone Express.
If you could just share the share of JMP that represents now and how much was this a driver of that step up and order frequency that you saw and then also if you could talk about your expansion plans the dark stores over the next year given the fact, you've now gone out of Moscow and you've gone into new cities is there something as you see working in most of your cities or do you think this is.
Still something limited to perhaps some of the biggest cities and also how are you thinking about that the signs at the store as well and the relative number of Skus per store as well any more color on your expansion plans that would be great and then finally just on your seller base. So you've seen this big growth in your merchant base, just wondering if youll seeing sellers choosing more.
Spo vessels FBS, if there's been any shift that.
Color on that as well would be great. Thank you.
Sure.
Maybe on the citizens speaking so on express this business is fairly new for US as we discussed we will follow in 2020 and are actively developing the dark store infrastructure. This year. So.
Total share in our JV is less than 10% and I wouldn't say that.
The key reason for the frequency of increased frequency is driven by a substantially better proposition to the sellers in terms of.
A number of Skus available in the platform quality of service and speed of delivery, Obviously express contributes the frequency increase in the cities where it operates in most core primarily some peak hour.
Our recently launched across southern Rostov, but overall the frequency increases driven by the performance of the core business.
Yeah.
Yes on SBS and <unk> doors fleet looking at here I think.
I can highlight two trends that we see first we see more and more sellers to actually go into two models because sexually.
And I can claim that this model is actually not differentiated sellers you couldnt shade different security some goods. So what do we see that sellers are actually.
Mixing models.
So we see a slight improvement.
FBR.
And.
So the fact that we have.
We pay a lot of attention to regions and we'll ask via sellers it simply.
Impossible to localize stock so and.
If a shelf region increases our commissions actual award for that in our commission becomes a bit higher.
And by the way an emissions because I looked at commentaries.
I see some misleading commentary sexual our commission is very similar to some of our competitors and some of our competitors increased commission three times this year.
So.
And we are on par and I think what we're focused on and we've been talking through this very clearly over the last year, we are focusing on sustainable commissions, because we built a long term partnership with our sellers.
Great. Thank you and just following up on the first question is just on sort of if you can talk about the expansion plans. They adopt stores in terms of new cities and then also how you're thinking about the format in terms of the number of Skus and the size of the stores.
Sure Leo.
So in terms of the expansion.
Express that starts already operate in St. Pete So they are not restaurants exclusively in Moscow, and we're experimenting with traditional expansion. However at this stage, it's mostly pilot so we'll see.
And about them.
<unk>, we're also experimenting with.
A number of various policyholders.
Delivery even speed yet.
So the previous value proposition, therefore will be trying to rollout a mix of.
Relatively if not our SKU count.
Vessels better delivery time.
While there is an earlier stage than you should.
Great. Thank you.
Thank you. The next question comes from the line of Ivan Kim of <unk> capital. Please ask your question.
Yes, good afternoon.
Firstly.
On the fourth quarter. So the growth is good in the fourth quarter so far.
Please comment.
Directionally on profitability level in the fourth quarter it will be the drivers defining the fourth quarter margin.
Secondly can you. Please talk about the ways you can improve customer retention and increase the moat.
How can you improve the adoption of the premium subscription.
And probably a related question is whether you think your food funded for the foreseeable future thinking about the investments you implement.
And lastly, just a technical question on the one three margin you said that like for like it's improved quarter on quarter size. I was just trying to understood. It was impacted by the one off inventory release from the allowance rate so what sort of like for like so to say clean lumpy margin you've had on the third quarter.
Thank you.
Sure.
First part of the question.
So in Q4 that actually they give us that we've been opening infrastructure ahead of the high seasonal ramp up order fulfillment and delivery cost components should be better.
Yes.
It should be one of the visible drivers in Q4.
On the margin.
Let me explain that so.
If Rick I mean Carlos here.
Which dictates that breast methodology.
Has Egypt and Youll note, saying, how <unk> essentially impairment reserves on stock should be calculated and evaluated.
Impacting most of the retail organizations globally reports on Canada correspondence.
Our case resulted in.
Let me just cost of $500 million rubles.
In our reporting.
<unk> gross margin is left of that so therefore effectively.
Gross profit for Walter business should be at higher by 500, maybe a little worse.
On your question with respect to our financial condition.
We have a five we'll have over $100 billion levels on the balance sheet as of now therefore.
Comfortably funded but for the last comment on any future financing plans.
The way to improve retention and increase the penetration of the premium subscription I will let them at.
Jim.
I think let me, let me split it into three buckets.
First is I would say I would say speed.
So it's actually what I'm talking about is that.
The increase in proximity of our last mile network increase in proximity of stock.
That would include two builds in regional fulfillment centers localizing spoke there most opening more and more express.
Okay.
Also on the box stores actually.
This proved to be very efficient historically, our our cohorts improve.
Improve.
And as I mentioned.
To keep this in mind, if you look at October 2 million almost 2 million people are doing weekly orders tolerated and thats compared to almost 500000.
A year ago. So that's actually worked out really well I mean of course, we will talk through additional services and maybe having.
Diluted solution different films on your smart TV pushes you to buy more in some universes right. So we are focusing on the very basic stuff. So that's one second put ads is.
Engagement via this more and more and with that we are working to develop social streaming and we had the most visited theme on the 11 11 origin.
So and we have big plans for next year in terms of social commerce.
And number three would mean.
Actually.
Hum.
Okay, great and motivation to show to be a frequent shopper and when I say that is that as it relates to premium and ozone card and others and other financial services, so that actually creates.
Hum.
I have a better stickiness financial itself our platform.
So these three buckets looking about three new how to motivate our you know how to develop the program I think we did a lot of changes over the last.
A couple of months, we see a good traction.
I think.
As we mentioned previously we're still thinking.
Also in reach the program one thing we did and it was.
The good thing is some.
We now have 11 11 promo we did one of these sales for premium buyers and premium buyers accounted for 50% of <unk>.
Which means that we actually found.
Found really good feature for the subscription so I think it's basically more of the same.
Alright, Thank you very much.
Okay.
Thank you. Your next question comes from the line of and Lena.
Nova J P. Morgan please ask your question.
Hi, Good evening, everyone I have a few questions. Let me ask one by one please first and foremost.
I noticed that you are talking a lot about.
The decline in your fulfillment and delivery cost per order basis, and you've mentioned the number 16% while as a matter of fact, we have been tracking that metric every quarter and we see that it's going down continuously ever since Q2 2020. So I'm just wondering why you decided to flesh out this particular.
Number during today's.
Release and in the same context, how should we think about.
The improvement in unit economics, when we actually see that your contribution margin.
Deteriorated in <unk> versus second quarter, that's the first question.
Sure.
So on fulfillment and delivery cost per order.
Why it is important because Q3, principally in tier one will deliver higher growth in orders.
Whether or not have four.
Most of our orders are delivered.
Artificial threshold therefore.
Our quality mix I mean is it that but thoughts of higher pre question more of a corporations what does it mean work basically expanded our infrastructure more than two times since 2020 and cost per order given will go up I mean, what <unk> that economy of scale is working even despite the infrastructure if not fully ramped up timing.
So this was the point and going forward with one program frequency cost per order should be diluted even more than that in the future.
Contribution profit subject to how you define it if it's gross profit minus fulfillment and delivery expense.
This is because fulfillment and delivery expense in Q3.
Went up.
Because of the openings ahead of the high season next year.
But.
So as I sat here the point for us.
That focus on frequency spank of economic because unit economics will improve even better because semi fixed components in our cost structure is significantly.
Therefore, given current cohort performance and Gary.
Given the current frequency trends.
Costs will be continuously dilution in the future.
Especially I mean.
Is it related to.
Yeah.
Okay and is it logical to assume that after such a big expansion of fulfillment infrastructure and the associated fixed costs in Q3, when we are in the high season of Q4.
We should start seeing contribution margin improving as a percentage of sales.
I mean, it depends on how youre defining the contribution of the module gross profit less fulfillment and delivery costs.
I mean, we're not giving exact guidance on profitability targets for Q4, but fulfillment and delivery costs.
Q4 should be better because of the ramp up.
You mean, better as a percentage of <unk>.
Yes.
Okay.
Then another question was on receivables why did we see growth in receivables.
Yeah.
I mean, but.
It doesn't look like a significant change given the scale of Australia has also changed.
It looks largely in line.
Or do you mean exactly by your question.
Well, we've seen a change in receivables turnover.
And that was something that I thought was unusual but if it's just related to Fas GMB growth fine, but it was a doubling of receivables and advances.
Three.
Q2 last year.
I mean look if it is not important if we can we can take it.
Nothing particular third tier it's business as usual.
Therefore, you should expect.
Significant improvement in the working capital dynamics as usual and because of this allowance.
So I.
I mean laughing.
Nothing unusual from Mike Buckley.
Okay can we maybe discuss a bit the outlook for advertising revenue growth. I think this is were you surprised on the upside.
What would be expectations for Q4 and next year do you think that advertising is going to accelerate growth or.
You've reached a certain level at which you're comfortable with.
Therefore.
Principal.
Yes, yes.
Yes.
So the ambition is that next year.
Starting from next year were going to become a reasonable lead players in it.
The advertising market overall.
So.
And that should continue growing.
So very healthy metrics in terms of engagement of sellers since our advertising pools.
Despite the fact that it's actually the number of sellers to grow in a normal bubble since March of this year, we actually.
Sellers.
It Hasnt bulls, increasing so being in that.
We will sell those used in advertising growing more than two times since March and it's more than half of sellers are using these tools.
We have a.
Quite soon.
While strong roadmap of products. We're also and has enhanced our commercial function and next year. The ambition is that we were going to become a top five players in online advertising overall in Russia.
Mhm in terms of metrics, we're not going to give any guidance but.
The percentage points should should continue growing going forward.
Understood.
And then also.
Daniel I had a question on the share of three P S percentage of Jamie.
It's growing very nicely when do you think it will stabilize and at what level.
It's difficult to say because.
I think I think it would it would be fair to say that.
Lets say at 70.
Less 75%.
Is the level of <unk>.
We have no aim to push Gpus share higher right. So it's at a level, where like broadly comfortable with not doing this specific push.
And then.
Just tell us and vendors people.
Because.
A lot of unexpected things, sometimes happens like sometimes big brands become sellers unexpectedly so anything can happen, but I would say like patent level more or less comfortable in some of those fleets.
I'll say strategically.
And then.
We will see what wondrous choose to be sellers or just a one key brands.
Mhm, Yeah, that's clear.
Another one I had was actually on sales and marketing. So these costs went down as a percentage of <unk> JV performance was very strong do you think this was really more of a one off or.
This is the beginning of a trend so we will see in the future that sales and marketing cost to go down as a percentage.
So it's not a one off I mean, that's a result of therefore to optimize the marketable expanding.
And then sales and marketing.
Several items are reported in aggregate marketing components dataset, I mean, as the spending call online advertising kind of file advertising has improved even more drastically versus second quarter 2020.
The rest of the cost is attributable to a number of factors. So one component is the sales team which is necessary.
In short the J&J growth and another component is cost of processing of the ozone Cup.
Okay and I also said that you know.
The trend continues we will look at our historical financials.
I remember when I joined two zone. The Lake this level of sales and marketing, especially if you look at through marketing component with our.
Other businesses or without the charge costs.
We were dreaming to have it like that.
So yes, it does it will continue.
Thank you and just a final one if I may please so you've you've announced a couple of interesting things that I picked up on and that this expansion to Belarus, and Kazakhstan and then you also touched upon the positive impacts on Jamie you're seeing from from the Fintech initiatives would be <unk>.
Is there a way to quantify what Jean V. Increments can we be talking about here and the more strategic sense, maybe how does how do these projects increase your mid term growth outlook.
Mhm.
Yes.
On Belarus, and Kazakhstan August of the initiative at the very early stage.
Now in view of.
Both countries ex Russia is below 1% so for 2021 spirits osteo.
Target for 2020, so give us thats why I love sharing broader guidance for the whole company will not communicate that but.
The pace of growth in Belarus, and Kazakhstan August there should be exceeding a vessel.
Our leverage and changing view will be growing and quite difficult.
One of the targets.
As for Fintech penetration of <unk>.
Financial payment products into our JV.
Alright, well exceeds 10%.
And is closer to 15 in fact, and therefore incremental uptick.
Frequency in JV and customer loyalty is quite material and going forward. This should be growing plus I mean, we're extracting additional.
Additional economies from a reduction effective reduction of air quality costs, because we're not paying for ferrous prices. Therefore, we have announced.
The incentive so that.
Penetration of Osaka up going forward.
Mhm Okay.
Understood. Thank you very much.
Thank you. Your next question comes from the line of Campbell Panarin.
Renaissance capital. Please ask your question.
Yeah, Hi, everyone three questions. Please so firstly could you give some color on your pricing strategy in <unk> gross margin outlook in particular during the high Q4 season should we expect further optimization of pricing or a reversal of Q3 trend.
That's the first one secondly, do you have a medium term target for fulfillment capacity.
And then maybe without giving a specific number on your plans for next year could you talk about how we should think about fulfillment cost as a percentage of <unk> in 2022.
And then lastly, too.
To sum up all your comments on margin trends, so EBITDA margin improved sequentially in Q3 adjusted for one offs.
Do you expect this improvement to continue in Q4 and next year.
Thank you.
Sure Carol.
So on all lumpy gross profit margin is helpful Guide for any exact level because it is project of our category mix.
Willow and salad categories gross profit margins are lower which is offset by higher average item value and other category gross profit margins are higher.
Which is also not necessarily good for the economy <unk> value is lower in that case, therefore I mean.
Prolapse baseball guiding the exact level of gross profit margins, but we believe that the levels, which were however, chief been lumpy.
In the mid term and were going further into FY 'twenty, so should be improving.
Because of the growing purchase power and a swallow the targets to improve with us with suppliers.
Gross profit or gross margin in general I mean, if campaigns other items.
It's a product of the basically it's a sum of the commission revenue we get from marketplace.
Advertising revenue.
From our from the seller and also from the suppliers from our LTV.
While the gross profit margins and some other.
Love that material revenue streams.
Overall.
What Daniel has mentioned about advertising revenue and given that our commercial structure is relatively stable and taken into account that going forward. We expect our gross profit margins to gradually improve obviously, coupled with still quiet.
Ambitious growth targets, yes, it's reasonable to assume that.
In the full EPS gross profit margin.
The company overall will be employed.
Thank you.
Next question comes from the line of Dmitry Vlasov.
<unk> co. Please ask your question.
Yeah. Thank you very much for the opportunity to Bill's question. So two for me. Please the first one is on the fulfillment and delivery cost items that fourth quarter. So given such a huge increase in the fulfillment capacity the $17 one.
Percent of cost line item other potential GMB actually doesn't look to me.
Just curious what would it be.
Please.
The fulfillment infrastructure would it be better versus second quarter of 2021.
When exactly did you open those fulfillment center was at the beginning of the quarter or the needle.
The next question.
Are you maybe planning to expand in any new business verticals to improve your customer proposition. Unlike maybe video streaming music audits.
Not an option that was now thank you.
Sure. Thank you for your question.
Yes, Youre exactly right without any incremental addition of the infrastructure cost per order would go down I mean, logically Q on Q and as a percentage of <unk> as well.
And many of the openings occur closer to the end of the quarter. So there is some impact of.
<unk>.
Of timing.
Within the quarter itself.
Yes in Q4, it's logical to assume that this cost component should be better relative to your fee.
Could you. Please repeat your other question is on other product verticals yet so on.
The other product.
<unk>.
No.
What I can say that.
Any additions, which might improve frequency and loyalty of the customers and sellers on our platform and we have a number of product initiatives.
Maybe.
Mainly internal ones, which target.
But at essential of customers.
Improvements in the engagement.
Those are relatively early stage initiatives.
We wouldn't mention that at this stage and I guess, we have a huge customer base already so we have one of the biggest one.
Thanks to the audience.
The Russian market, whereas technological daily audience, and therefore, it's very important for us to ensure that those people become more frequent shoppers of the core platform in the first place.
Which means that we still have to follow our playbook, bringing in goods closer to customers and other central delivery speeds and program delivery sales program by availability.
Each of the pickup points included delivery channels, adding assortments, ensuring that they have we're selling stock available in Europe about housing facilities et cetera, et cetera. So it's a relatively complex equation, which you have the language.
To ensure great customer experience.
Yeah.
Thank you very much.
Thank you and your next question comes from the line of Ivan Kim from X telescopic Sir Your line is now open.
Thank you for the opportunity to ask a couple of follow ups.
Wanted to ask about the customer adoption.
It has been lately and do we see the significant improvement in churn and the recent cohorts, let's say in 'twenty, one versus 2019, and maybe it would be possible to quantify that.
And then secondly on my warm express impact on profitability I think you said it.
Second quarter.
It was about one percentage point impact on EBITDA, maybe you can provide some more instrumental what was the impact on the third quarter. Thank you very much.
Okay.
Sure.
On top of CSU exactly right, we see continuous improvements in the cohort default.
And in both client cohort.
JV per active buyer and et cetera, So inevitably section.
And could you please repeat your other question.
Yes. The second question was just on the ore.
I want to express.
Bill.
Sure.
Sort of.
It was a it was around.
Like.
It was around the same numbers.
For the first quarter.
I mean in relative terms.
Okay, great. Thank you very much.
Thank you and the next question comes from the line of Catherine O'neill from Citi. Your line is now open.
Yeah.
Great. Thank you.
One question about the.
Thank you <unk>.
Yes, I think taking damages. He suggested it would be <unk>, if I could I don't know what frequency I just wondered if you could give us some idea about how we should think about the africa without eating into full Keith.
Thank you. Thank you. Thank you well take some frequency.
Uh huh.
Average order value.
Q4, I mean, we see that that should be pretty much close to the one re shift.
Geoffrey so they are not expected.
Cereal deviations from this targets and going forward.
It will it's a relatively complicated as a guide because we already did a lot have been asked official thresholds.
The minimal order of value for.
Delivery thoughts pick up points.
As thresholds of roughly 50 Bucks.
They live in.
For the delivery of via <unk>.
And so far the la plant, so reduce it going forward, but.
The mix in the basket might be changing because of customer preferences.
So what we're doing here I mean, our goal is to ensure that we're able to deliver but economics under all circumstances steel.
Our ability to meet the customer needs.
<unk>.
Keeping keeping in mind our goal so improve economics in the mid term.
Great. Thank you.
Thank you.
Next question comes from the line of Aleksey <unk> from Jpmorgan. Your line is now open.
Yes.
Hi, Thank you for the presentation could you. Please share some color on your performance in the more mature markets like Moscow and St. Petersburg.
The growth in these regions materially lower compared to the group level or it's broadly similar.
That's my first question thank him.
Growth in Moscow is also very strongly because we're deploying quite a significant I mean.
Fulfillment expenses capacity, otherwise improving the reach of the pickup points.
But.
The Asia are growing a bit faster.
Still growth in multiple ways.
Quite impressive forgiving, obviously, a higher base.
Yes.
And my second question would be on.
Your.
Targeting of any specific categories. So have you been particularly aggressive in any specific category in the third quarter and during November campaign for instance, we remember that the previous quarter user experiment and then Lord Ian.
Consumer electronics and use.
Is it still the case over the last three months.
Were you scaled down.
Specific categories.
Thank you.
So.
The source of it differently, so internally given that my mother shift gears assortments of admin.
Close to 50 million of <unk> by the end of third quarter.
Any single pricing strategy more than book. Therefore, you have to combine this and get strengths will combine our latest product offerings you have.
Combine different.
The value proposition stores customers, So I would say that we can't.
Literally abolished or promo campaigns, and et cetera, especially given that you already what the kind of advertising for some of the promo campaigns by your suppliers.
The silos.
But we have optimized the level of investments relative to Q2.
<unk> seen in our numbers.
It will have any negative impact on <unk>.
On the growth of the group overall and this was one of.
One of the most important highlights for us.
The growth in fact accelerated in third quarter, while we have much improved.
The pricing rationale less marketing expense.
This is important.
Yeah I can also add if you just talk through passengers I think.
So I think it's it's it's.
Still keep in mind that we are building.
Through a horizontal platform. So we aim for the whole retail market.
That's unchanged.
We definitely want.
We definitely want to see high growth in the <unk> specialists through the express and.
What I can also highlight is that and there is a high growth across the board even in the books, where we are already at the Brookfield the market's been online sales.
What I can mention specifically the apparel.
Overall, the pedal segment.
It gets them to become the biggest category.
Very high growth.
And.
I think we did a good job over the last year actually to create.
A very good base for this category at all so we.
We have now pick up points of fitting rooms.
We have critical mass of assortment and sellers that have actually over $5 million.
And I.
I think.
So we.
We're not where we would like to be.
For sure and that's the key.
Category, which is a lagging historically alone, but we think that we reached a pivotal point too.
To continue growing but it doesn't necessarily mean, that's going to be late because of the huge investments there but.
But we see a discount to get outperforming and that should continue going forward.
Yes.
Very helpful. Thank you and probably a last question on competition.
Can probably highlight who would be the most aggressive right now in terms of marketing and promo.
Hey, Manav, because again, the Dolby Atmos, where we're at.
The more we are the most rigorous.
We offer the best.
The best terms for the high frequency and our order value actual highlights of this.
We.
We invest significantly into marketing in absolute terms were the most aggressive player there.
Also aiming to collect more.
So that's it's actually sellers and brands being for that so we because that's what it is effectively because as that goes.
So we are by far the most aggressive player in the most aggressive develop develop or over the industry. Despite any numbers, which you can see what she can share publicly.
Thank you very much.
Thank you there are no further question at this time please continue.
Okay.
[noise]. This Alexander speaking, let me give you some closing remarks, but this will finish the call.
So thank you very much for your attention.
We want to thank for joining our quarterly call and for your questions today.
We continue to focus on scaling our business and expanding our e-commerce business as well as additional verticals, which are complementary to our business.
With the progress we have made in this last quarter, we signed a 45% G&A growth and record order growth of 139% with unit economics exhibiting signs of improvement in Q3 compared to Q2 2020.
Efficiency initiatives.
Implemented are bearing fruit with gross profit as a percentage of JV and marketing efficiency improvement quarter on quarter, helping to drive margin improvement quarter on quarter on the electrical ambitious looking.
Looking ahead, thanks infrastructure additions and concerted.
Effort.
Silicon well Rob.
Prepare for the high season of 2021 and for the growth in 2022.
With strong momentum in our platform and great engagement demonstrated by growing user and seller base as well as horizon auto frequencies, we believe we're well positioned to deliver to deliver on our long term objective of becoming a leading E Commerce company in Russia.
We look forward to updating you on the progress we make on our Q4 and full year earnings call in March.
And have a good day.
Yes.
Thank you that does conclude our conference for today. Thank you for participating you may now disconnect.
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