Q2 2019 Earnings Call
Two Q2 thousand 19 earnings conference call at this time, all participants are in a listen only mode. After just speaker's presentation, there will be a question and answer session.
She asked a question during the session you will need to press star one on your telephone.
Please be advised that todays conference is being recorded.
I would like to have the conference over to your first speaker today Ms., Cindy <unk> director Investor Relations. Thank you. Please go ahead.
Thank you Kareena Hello, everyone and thank you for joining US today Pandora earnings release was distributed earlier and is available on the IR website at Investor Dockendorf Dot Com as walk through Globe Newswire services on the call today from Pandora I missed the jump <unk>, Chairman and Chief Executive Officer, and Mr. Davis, Vice President of strategy.
Mr. Wang will review business operations and company highlights followed by Mr., Liu Who'll discuss financial.
They'll both be available to answer your questions during the Q and a session that follows.
Before we begin I'd like to remind you that this conference contains forward looking statements meet within the section the meaning of section 21 of the U.S. Securities Exchange Act of 934 as amended and as defined in the U.S. Private Securities Litigation Reform Act of 1995. These forward looking statements can be identified by terminology such as well expect anticipate or similar statements such statements are based upon management's current expectations and current market operating conditions and relate to events that involve known or unknown risks uncertainties and other factors all of which are difficult to predict and many of which are beyond the company's control, which may cause the company's actual results performance or achievements to differ materially from those in the forward looking statements.
Further information regarding these and other risks uncertainties or factors included in the Companys filings with the U.S. Securities and Exchange Commission. The company does not undertake any obligation to update any forward looking statements. As a result, we as a nation future events or otherwise except as required under applicable law.
Now it is my pleasure to introduce chairman and Chief Executive Officer, Mr. Han Mr. Walker. Please go ahead.
[laughter], thanks, everyone for Tony or worse call second quarter 2009, two earnings call.
The end of July marks our first anniversary.
As a publicly listed hopefully during this past year Pandora has become widely recognized as chinas, leading new E Commerce platform.
We witnessed a strong growth.
On your active buyer base to 483 million and a significant increase in our log 12 from all the JV to RMB.
So oh my goodness.
People doors Mobby first venture for me.
Nor for some of our management team.
We funded Pandora, because we saw the opportunity to create something that generates a positive and a lofty impact on society.
Something that would create value not just for us as an auto cars, but also for the society as it would devote ourselves to that if at all what the people first and to be more open.
Looking at our scale today, what do we have accomplished together with our ecosystem problem Rosetta uses.
We are one step closer towards that vision.
I'm thankful for the continued support of our shareholders our pod loves our employees are the most importantly, our users in this journey.
Well, we were left with a year ago, and all and often below to most people.
Despite all were consistent messaging.
Some competitors try to frame us as a platform to want to only a chalk to price sensitive users in lower tier cities.
And that our products are cheap because they are low quality well even knockoffs.
Today, our results have formally demonstrated it otherwise.
In the past year.
We have expanded got one merchant base to over 3.6 million to serve out were 483 million users.
With our broader product selections across all categories.
If a user is looking for beauty products for example, they wouldn't be able to find a full range of mom branded the branded imported goods on the P. candour.
We appreciate how to use as a preference and a perception of value vary widely across the different product categories.
And change their life stages and the surrounding changed.
Yes, we have been working hard to serve the multiple aspects of our users.
As they evolve.
In other words would adapt and improve everyday other users grow as a result, we have seen the increase user satisfaction engagement at a broader penetration.
Our g. from tier one tier two cities a percentage of total GMB has gone from 37% in January this year to 48% in June .
This meaningful change as a result of our relentless focus on serving our users regardless of their location age and gender.
It is what do we mean by Sobi all put to use it and put in use of first.
Our 618 campaign is the perfect example, you accomplish the shopping festivals in China.
Evolved over the years into complex promotional events, that's good for consumers so a lot of hassle.
However, what consumers really want is to buy what they have been converting at a compelling prices without having to incur additional costs well complete arduous talks.
As such even though we're not a problem focusing on E. Commerce shopping festivals, we did a successful trial. This year during the 618 campaign by entering around a very simple and a consistent message.
The price that you see is the price you paid.
We identified at above 10000, a desirable it caught us across major categories.
We need to see the branded well Brendan.
We then worked with our merchants to make possible the lowest prices we had a dedicated team to ensure that users we're getting the best deals over a wide range of products.
So they wouldn't want you to look any further.
The result was a 300% year over year do you have any increase for the 618 promotional period from June the first to the June 18, with daily order volumes average over 16 million.
Well pleased with this result, and that will continue delivering goods and a clear deals 12 or uses consistently.
For merchants, who possibly the with us during the 618 kept pace with folks about ensuring they receive a fair amount of exposure for the savings.
Offer total users.
This demonstrates how we abide our own principles of benefiting all which was down to family for.
In the past many emotions how to participate that again all on shopping festivals, but did want to always get a real benefit when it compared to certain brands. It was it's preferable preferential status.
There's clearly it doesn't depend if at all similarly, we don't and it will never force anyone to take sides work exclusively with one platform over another.
Such tactics may per loan to platforms and marketing for us in the short term, but of all the only skirt merchants have users in allowed Roe.
Our aim is to build an open and transparent platform, where merchants can peach Sally to offer greater value and the service is probably users on a sustainable basis.
User satisfaction.
As our sole KBR.
And it will work tirelessly with all our ecosystem partners to achieve this common goal.
The benefits associated with all participants and drive a virtuous cycle as we enable our partners to deliver even more value to our users.
How to create long term sustainable value is a question would reflect upon constantly.
Because of the scale of our user base, we're able to aggregate is mountainous dynamically recommend products at a major uses.
This enables our merchants to optimize supply chains.
To yield a cost efficiency that or what to support sustainable competitive pricing.
More importantly.
Our Tropicana data analytics capabilities provide visibility and any insights into such a demand.
Which we can share with merchants further to fundamentally improve the existing supply chain.
The value unlocked.
Can be reallocated at a drive further investments, but what about elevated efficiency and improved income of our ecosystem partners.
This is the fundamental thesis of our seem to have an adult all fall initiatives.
Which would have continued to make progress on.
For the merchants on our platform.
The topic in the revenue from Buffalo, not just to generate employment, but also give them the assurance expended business.
Build their brands and to do more.
To date.
We have expanded the number of manufacturers you our new branding initiative for Trokendi to December .
At December 2018 to 63.
And they cover industries, ranging from large home appliances glassware kitchenware, we have had over 1300 products custom made for our platform.
How to maintain over 700 million orders during this years six to 18 campaign alone.
We sold over 9 million onto items produced especially for people to.
At the same time.
We continue to deepen our agriculture involvement with large to phase two of the total farms in one shot.
As the largest e-commerce platform for fresh agriculture produce what deeply committed to realize a win win situation whereby farmers capture more of the economic benefits of consumers get a better price to produce.
We recently extended to this initiative through our agreement with the Renin province to help our total off since 74.
Polymers difficulties.
Working together with the local authorities, where pod Uri aside a self driven copper it took a system, where educating fathers how to get better planned planting cycles, how to efficiently modernize their production as well as how to market and the price that produce.
The next step and Doug journey would it be getting these fresh produce to consumers and it even more reliable and the time that better.
Well I'll ask ourselves what else, we use or what else do users want to besides value for money products.
And how do we help to people who actually produce these products.
One thing that keeps popping up as having cheaper faster and at a more reliable logistics and supply chain networks.
The com system has already improved significantly over the past decade, thanks to the economic growth China has experienced.
However, we believe technology good building on what do we have learned from all the ecosystem participants on this platform could help further improve <unk>, even fundamentally change the structure of the existing system. This is not a small task.
But doing so what does significantly widened the range of products available to users, especially agriculture products and a reduced logistics logistics costs and the supply chain with it.
Yes, well started developing an older technology platform that can be jive can be a driving force for the logistics model of tomorrow.
Or what do we like to call new logistics.
This asset light model will be an open platform focused on leveraging technology to provide solutions to our sizable kind of grow your merchants.
Phase two so the users.
We welcome all to participate.
The first pillar to our platform was that you would build system, we launched at the beginning of the year.
The rapid adoption of our ecosystem partners, including all the major threepl providers, coupled with positive user feedback has propelled our you will go system to become the second largest in China within a few months.
To date.
Almost all of our orders have adopted our you will build system.
This is a result of us keeping encompassing.
Our logistics platform by constantly introducing new features to satisfy users' needs.
Such as possible intercept deliver rewarding and a service it provides a recommendation.
Our merchants have the freedom to choose.
Food and to use ours or others systems.
With regard to offer the best product to them.
Duty on top of that you will build we are systematically rolling out other value added services.
That form the foundation of our future logistics technology platform.
While increased economies of scale drove the improvements in industrial efficiency previously. It is also beginning to reach its natural limitations.
New technologies, such as a hydro I driven routing robs planning I OTI sensors and devices automated a warehousing sorting and routing to name a few.
Will become the basis of the next generation logistics services.
As we deepen our relationships with merchants to see to a cross border E Commerce and other initiatives, we will be well positioned to works together with all parties Oh, all areas stemming from supply chain to production warehousing and sort of deliveries.
Only to reach a vertical integration and the partnership what we'd be able to fundamentally change the allocation of if not the dollar you know that in the industry and we are committed to doing so.
Such that we took value can be shared with our users and the value creators across the value chain.
As an example, we have been spearheading site investments to drive innovation agriculture, a logistics.
Our scale enables us to work with farmers to standardize food to sizes and optimize the packaging design.
Were also working with ecosystem partners to evaluate having a dedicated you would build for agricultural produce and separates the logistics from ordinary parcels to optimize efficiency and the quantities.
Our predictive modeling technology to help power and a rough timing behind the agricultural produce network. We are confident that as such optimization can be achieved because of the unique technology backlog of our team.
Our founding principle off would be open to all parties.
And the large on a growing amount of the demand our platform from our diverse user base.
We believe that the one can only succeed by constantly innovating and a b mall, but.
As we look forward to the second half of the year, we remain confident that our strategy of focusing on users and a benefit in oil will continue to generate strong results and it will continue to invest in technology and the capabilities that it would enhance our users' experience.
With that I will now have the overtime to David.
Thank you Carl and Hello, everyone.
The second quarter of 2019 was a strong quarter for US we continue to execute on our strategic priorities to serve our users.
Our last 12 months DMV grew to 171% over the same period last year to reach RMB 709.1 billion.
During this six when they campaign period from June Onest to June 18th.
RJ arch Levy grew more than 300% year on year with over 1.1 billion orders.
Total revenues for the quarter grew 169% year over year to RMB 7.3 billion up significantly from RMB 2.7 billion a year ago.
Our strong revenue growth was driven primarily by the rapid growth in our GMP, coupled with our steadily improving monetization rate, which is a reflection of the value we have created for our users and our merchants.
Our last 12 months monetization rate for this past quarter was 2.9%.
Oh and marketing services revenue was RMB 6.5 billion this quarter constituting 89% of our total revenues.
This is up 173% to RMB 2.4 billion for the same period last year.
Our last 12 month online marketing services revenue increased for the seventh quarter consecutive quarters in a row to reach 2.6% of our total dnbi.
This sustained growth reflects the continuous expansion of our platform and our services.
As more buyers visit our platform more frequently spend more time browsing through our product fees and purchase with greater trust the advertising ROI for our merchants are apart from also improved.
This encourages our merchants to leverage our advertising products more actively in order to ramp up their exposure to targeted users and drive more sales.
In the meantime, we also continue to enhance the advertising and selling tools available to our merchants.
For instance, this quarter, we introduced a feature it automatically scans all active product listings to see if they are optimized for display and discovery our platform.
Merchants can now quickly identify any official listings and easily you follow our system's problems to fix these issues.
This helps merchants to reducing the effective marketing spend and achieve better our lives, which in turn drives greater investments by them on our platform.
Many of our merchants are still in the process of building out their presence and accumulating sales on our platform and they're still familiarizing themselves without problems rules.
It is therefore critical to have more comprehensive tools and to educate our merchants about these tools.
We anticipate more participation of our active merchants on our platform.
Let me give you an example of a Mercer who has built on its initial success on our platform, but better use of our advertising tools.
This is a womenswear much in what has been our platform for over two years.
They have their own factories and 30% of their sales are online, which can go to a cost to 70%.
Bump indoor they decided to focus our higher ticket price higher quality womenswear and their ship product is a trench coat, which they launched in late 2018.
The code as price, 50% higher than that of their competitors are still offers great value given superior materials.
Despite the higher price they saw over 40000 units with the help of targeted advertising.
They spend initially on keyword bidding to fill up sales volume and through a continuous optimization of their keywords creative and listing details improves their conversion rate to double that of their peers.
After building up their sales force you might then add a feed advertising on top of keyword bidding.
In their peak salesman, they have ramped their combined monthly spend to three times the prior month as they incrementally targeted users who had browse competing products.
Sadly not only the users who have search for trenchcoat see their products.
They would also be re targeted and re exposed to the P.S. two different portions of that as they continue to bras.
In the first quarter, the marketing spends help them generate an incremental 10000 units sold on top of the organic traffic.
And the merchants realized an average ROI around 10 times.
This is just one example of a successful merchants on our platform.
But it gives some perspective on the drivers of online marketing service revenue.
Randy our discussion on revenue.
The remainder of our revenues come from transaction services.
Our transaction services revenue for the quarter grew by 143% year over year from RMB 338.1 million last year to RMB 822.9 million.
Our transaction services revenue as a percentage of our GMB fluctuates from quarter to quarter, primarily as a result of our tactical adjustments to Incentify merchants and partners, who provide superior service to our users.
We continue to build other value added services, such as logistics and merchant advisory to help our merchants grow their business more rapidly our platform and realize better return.
Moving on to costs.
Our total cost of revenues increased from RMB 387.8 million in a stake in the same period last year to RMB 1.6 billion this quarter.
The stress is this translates to a gross margin of 78% this quarter as compared to 86% a year ago.
The lower gross margin this quarter as compared to the prior year reflects our investment in network infrastructure and merchant support services to support our rapidly growing operations.
Total operating expenses this quarter were RMB 7.2 billion as compared to RMB 9 billion in the same period last year.
Our sales and marketing expenses this quarter increased from increased to RMB 6.1 billion as we made a large market and push towards the second half the quarter would prefer sharp promotional activities, leading up to and throughout our six when they campaign.
Over the course of June Onest to June 18th we saw GMB grow over 300% year over year as we generate a huge amount of interest and engagement from new and existing users alike.
We received over 1.1 billion orders during this campaign, which translates to over $60 million orders daily.
In just the first week of our campaign, we saw over 12 million buyers place at least five orders each indicating a high level of repeat visits.
Over the course of our quarter. We also saw higher average order values and growing purchase frequency, which combined to drive our annual spending per active buyer to RMB 1468.
Representing a 92% increase from RMB 706, the Threem for the June 2018 quarter.
Sales and marketing expenses as a percentage of revenue this quarter came in at 81% on a non-GAAP basis, I guess meaningful GMB growth and revenue uplift.
We continue to be very focused and targeting our marketing strategy.
As we have shared previously when we strictly and on a real time basis evaluate the ROI of our sales and marketing investments.
We go beyond financial metrics to include the changes in engagement that these investments bring about.
For example has the users gone from being act being active annually to being active monthly or even the bailey.
And in that journey.
After usurping sharing more with their friends and family already inviting new users third platform.
User engagement influences user trust user spending mentioned, our I mentioned spending and more importantly, our entire platforms user satisfaction level.
We believe that our strong results this quarter demonstrate a meaningful underlying leverage of our business model and the initial benefits from the investments that we have made in the past.
We continue to see significant value and potentially enhancing our user engagement and we will remain disciplined and optimistic with our sales and marketing investments.
We will only invest when ROI requirements can be met and the investments accrue to the intrexon intrinsic value of the company.
Our general and administrative expenses this quarter were 278.3 million RMB.
A significant decrease from last year due to lower share based compensation expenses.
On a non-GAAP basis, our chimney expenses as percentage of our revenue was 1%.
Our research and development expenses were RMB 803.7 million this quarter, a significant increase over last year as we invest in hiring more experience algorithm engineers and spend more on R&D really the cloud services.
On a non-GAAP basis, R&D expenses as a percentage of revenue was 8%.
We are on track with our plan to add at least 2000 engineers this year and we'll continue to invest in our distributor here in infrastructure.
Operating loss this quarter came to RMB 1.5 billion compared with loss of RMB 6.6 billion in the same period last year.
non-GAAP operating loss was RMB 898.4 million compared with a loss of RMB $815.7 million in the same period last year.
Net loss attributable to ordinary shareholders was RMB 1 billion compared with net loss of RMB 6.5 billion in the same quarter last year.
Basic and diluted net loss per adss were RMB 0.8, compared to a net loss for ABS of RMB 13.4 during the same period of last year.
non-GAAP net loss attributable to ordinary shareholders were RMB 411.3 million.
Compared with net loss of RMB 673.4 million in the same quarter last year.
non-GAAP basic and diluted net loss per adss for RMB 0.36, compared with RMB 1.4 for the same quarter of 2018.
That completes the profit and loss payments for the second quarter.
Net cash flow provided by operating activities for the second quarter.
Was RMB 4.1 billion.
Compared with RMB 1.1 billion in the same quarter last year.
Primarily due to an increasing our online marketing services revenues.
As of June Thirtyth 2019, the company had a strong balance sheet with RMB 40.7 billion in cash cash equivalent and restricted cash.
Excluding restricted cash we had RMB $23.9 billion in cash and cash equivalents.
In addition, we had RMB 7.9 billion in short term investments, bringing our total cash available to RMB 31.8 billion yes.
As such we are having a good position to make the necessary investments this year to bill or a platform and strengthen our competitive advantage.
We still see a lot of room to innovate and deliver more value to our users and merchants and we will invest prudently to further our strategy.
This concludes our prepared remarks.
Operator, we're now ready for questions.
Ladies and gentlemen, we will now begin the question and answer session.
In order to be fair to all callers, who wish to ask questions. We will take one question at a time from each caller.
If you have more than one question. Please request to join the question queue again. After your first question has been addressed.
If you wish to ask a question. Please press star one on your telephone and wait for him to be announced if you wish to Kas request. Please press the pound or hash key.
Your first question comes from the line of P., you wish Mubayi from Goldman Sachs. Please ask your question.
Thank you for taking my question.
Are limited to one but it's a big question when I look at competition I look at your market share you've captured more than 31% of the GMB growth in China over the second quarter.
And that's up from 20 120 519 in the last couple of quarters at that run rate by the time, you get to the and by the time, we get to the end of the market share will be fairly significant I wonder if you could comment on the competitive landscape.
Currently at the end of the year. How this is likely to change and what are the challenges you think you will face in the coming quarters. Thank you.
Okay.
A lot of people ask me about the competition E Commerce in China as indeed.
A very competitive landscape.
But I want to reiterate.
Sure that we are more focused on our operations and how we preserve our users.
Rather Dan.
Look at what others are doing.
With that said.
Competition has it always been here, we have always operated in a very very competitive industry and we have managed to grow to our current scale. Despite these competitions.
Actually.
We should to be SEK four to these competitions.
Since the how fast to learn faster and innovate faster to serve our users.
To some degree the result of last quarter is.
Somewhat a result of the competition.
One example is the 618 campaign, which shows that we are on the right path.
We saw good results. This year, because we are laser focused on our users instead of our competitors.
Speaking of.
The specific a competition techniques.
On the merchant side. They are indeed has being very intense competition some of which.
Our against a reason to e-commerce law and the process of merchants to pick sides and work exclusively with one platform.
This actually goes against our principles to provide an open platform and fair platform to order merchants.
Recently actually we notice that.
The General office after State Council released the guidelines for regulating and and and nurturing the sustainable development after e-commerce industry to boost economic growth.
Into reiterated the importance of fair market competition, and a product quality control for consumer perception. So as stated state administration for market regulation has been tasked to implement these guidelines.
So maybe there is some short term impact by the force to exclude exclusive sensitivity, but it doesn't seem to be sustainable and so far.
It looks like to some degree it stimulates innovation within our own team and help us it's way too much faster than before.
And if you look at this problem as a long term question, Dan It's very clear that forced exclusivity is against the fundamental inches to have the brand owners and order users.
So with that I don't think it can last that long.
So.
If we.
Look even longer term.
So we should notice.
Today.
The e-commerce market in China is still not a zero sum game yet.
I want to say it is still sort of the early to middle kind of a stage.
Faced with a growing on 30 trillion RMB market plus a retail sales opportunity.
This industry should focus resources and energy innovation instead of.
Looking at.
What others are doing trying to take others, PPI or something like that so if you look at Chinas total retail and I want to say E. Commerce was do take more and more market share or a bigger pie of the overall retail so with that.
This huge growing e-commerce market.
Our order players I think we'll still have a large loan to grow despite.
The severe competition in between.
So.
Does that answer your question.
Your next question comes from the line of Thomas Chong from Jefferies. Please ask your question.
Hi, Good evening management offense walking my questions and congratulations on a strong set of results.
I have a question relating to sales and marketing expenses I noticed that the sales and marketing expenses.
The 6.1 billion for this quarter, which is slightly higher than the street expectations, but what we see is that as a percentage of revenue. It came in better than expected because of better monetization. So my question is about the trend.
With that that would be coming from.
Compared to street expectations, and how should we think about sales and marketing expenses as we go into the.
Second half thank you.
Thank you. Thank you Thomas.
We understand.
Sales and marketing spend is a focus of our investors.
And we will like to again reiterate our strategic focus in terms of what we want to achieve with our sales and marketing investment has not changed that is to say that we seek to enhance user recognition of our platform increased user engagement and Buell users' Trust.
Because we believe this will translate into growth of both our GMV and revenue and ultimately margins and accrue to our long term intrinsic value.
As such sales and marketing leverage as demonstrated by our second quarter results is really an output.
The 6.1 billion you see.
This is not a target variable that we optimize for.
We also to non managed towards a fixed budget in terms of dollar or ratio.
This is because blindly a hearing to such a targets, we believe may resulting us missing out on good investment opportunities in today's dynamic environment.
So going forward, we will continue to make investments in sales and marketing as long as our ROI requirements are met.
We see ours results in the second quarter as a good indication of our strategy being on the right path. However, we are not in a position to comment whether our sales and marketing numbers will increase or decrease and we hope that investors appreciate our discipline and strength to always act quickly on marketing opportunities.
Next question the next question.
Yes. Your next question comes from the line of Alicia Yapp from Citigroup. Please ask your question.
Hi, Thank you good evening management, Thanks for taking my questions and congrats on the solid quarter I'm. My questions is related to your new user growth. Given these 483 million active buyers. This quarter is very solid just wanted to get a sense.
Among ordered a user acquisition strategy that you engage in the past.
Which one that stand now as the most effective in acquiring the new user and then given the step up effort by some of your peers too aggressively penetrate into the lower tier cities or are you seeing any change in the cost of a new user acquisition or any change in the user retentions and even if we look into longer term I'm, saying, let's say PTT able to achieve a similar size of the user base of our largest peer how do you see the user on your platform versus the competition, how how what are the attractiveness on T.D. the platform that could continue to attract and retain the user to shops on TDD. Thank you.
Semgroup real question or a vendor youre curious about which took and we might have to be the most effective or mostly used for but I'm, sorry to say hey.
Is that.
Oh. This is the result of a consistent strategy I really it's not a secret but to be honest. It is it is there is no secret there. It's just a word keep doing the same thing and we're cheap laser focus our users. So the user acquisition as a result of the users that production level as.
Sometimes a number would be higher or sometimes the number will be lower.
But the view.
If you forget about a quarter by quarter numbers instead, they look a little bit longer look at a year or several years than yours.
Gradually sort of.
I believe.
In a simple philosophy.
Which is if you do the right thing continuously and consistently then you will see the power of compounding.
So this quarter to us it's just a normal quarter. There really is nothing dramatic has happened happening, but the beauty of our model is that it's simple and it's.
There is no magic there.
Yeah, Hey, Alicia just to add on top of Collins comments.
I will say that.
Far longer if you look at our results.
It is really a reflection on us continuing to focus on what users need and want and being able to deliver on that value. So as a result, you can see that almost half of our JV in June .
Well, but almost half of our JV in June actually came from tier one and tier two cities. This shows that our investment in building our brand recognition are paying off and we also continues to use our ads.
Yeah, you know lower tier city as well so as we have mentioned our communicated in the past into it though is really designed to be a full blown e-commerce platform to serve the entire population of China.
And we are really seeing as you know user adds being across the board.
We would further highlight that because our better understanding or user preference and how they interact and influenced the network. This actually has help us refining the relevancy of recommendations and we now have and because we now have a wider range of products tackling more characteristics wise to utilize them for more nuanced recommendation, we have seen this being reflected in an increasing our ASV now to over RMB $50 50 RMB.
[noise].
Okay Yep.
Your next question comes from the line of Natalie Wu from C. ICICI. Please ask your question.
Hi, Good evening, Thanks for taking my question and congratulations on a very robust the Iris out my question is regarding the R.J.D. subways away Chad level, one and she studied brown. This October a which is going to be more targeted at the lower tier city users with value for money goods.
So just wondering should we worry about any potential impact below us who the British it if management can give us some color on that thank you.
[noise].
Oh well.
Well in general we don't comment Tom.
Other is a strategy or others activities.
But I can see a little bit.
Oh, I think the slots, it's already there and they have been doing this for.
Quite a while and.
And.
And then.
In parallel I think were just doing our own thing and.
The strategy has been stayed the same and have always been focusing our own users instead of.
Worrying about what the others are doing and.
Looks like our simple minded strategy doesn't reward us in the past so we'll just to stay with where we are.
[noise].
Next question.
Yes. Your next question comes from the line of Binnie Wong from HSBC. Please ask your question.
Hey, good evening management, congrats on the quarter with beat across the board. So speaking of luck just take right. It's one of the key investments <unk> E Commerce company in general to improve the audio efficiency and also ensure the quality delivery talk once the customer, especially important as you said, we're moving to into tier one to cities where users are they tend to demand more. So our question here is that what is the business model here and that as we see earlier this year.
He go door has been.
Offering more logistic software and proactively working with merchants that you a bill and also.
What is the how much capital investment we need to fall logistic support and how would you compare your logistic support versus our competitor.
Who already have.
More well established.
Our logistics network there. Thank you.
Thank you for the question as Colin mentioned, we always ask ourselves what else, we could offer to our users to enhance the user experience.
And to further enhance our trust and logistics is one thing that we focus on and keeps coming back.
We launched our new ABTS system at the beginning the year to make shipping information more transparent and more up to date.
To our users.
And as you may have seen in the first half of the year, we had over $7 billion orders on our platform. So according to China posters tally of 27.8 billion completed parcel deliveries.
During the same period in China, our implied pass the parcel market share is well over 25%.
The bulk of these parcels the bulk of our parcels are now process through our new way Bill system.
The success are you able system is what prompted us to.
With the idea to bill on top of it and open technology platform to further enhanced logistics and supply chain efficiency in our ecosystem.
The efficiency and the current logistics industry has been driven largely by economy of scale and we realize that there is significant room to improve using technology.
So our initiative will be an asset light as possible.
We do not plan to invest in warehousing assets or build delivery fleet.
Our aim is to connect and optimized available capacity in the industry to provide better service quality and realize greater efficiencies to further lower per unit costs.
We have already started to do this in agriculture as part of our total farm initiative.
Over the Renren long run, we actually anticipate using this platform to address different supply chain SaaS opportunities that may arise on working closely with our factories and agriculture producers.
And to realize and further.
Restructuring of the value chain in order to reallocate economic value across the supply chain to the producers and benefit our consumers.
Next question please.
Your next question comes from the line of Teen along from Credit Suisse. Please ask your question.
Hi, Thank you my name for taking my question and congratulations on the good results. The question is on the take rates because I understand that the company started to give some discounts ah for quality merchants, but I think are the take rate has been seen some recovery in this quarter. So I want to know what's the direction of the take rates over the next few quarters are we started there will we started to narrow down or scale back the discounts to those quality margins and secondly, very small on the sales and marketing sort of as a follow up because in during the June 18th campaign. There has been talk is basically we have a EUR 10 billion. So the program, but after after the month of June basically now where are you seeing both the the the Logan and a apps in July and August . So does that mean that though we sort of a prolonged is competing for a longer period of time and also what would be the implication for the for your eyes.
Especially second half sales and marketing thank you.
[noise].
[noise].
Thank you for the question.
As I mentioned, we will user user experience or user satisfaction is our priorities. So we will always continue to support quality merchants.
On our platform, but I think the weighted.
The the way to think about the transactions services.
Take rate this quarter, we actually begin doing this in last quarter, and we continue to be mindful of balancing that versus growth.
This quarter, we actually continue to tactically reduce transaction services fee for some merchants by you should expect fluctuation.
In this ratio because as we mentioned, we do not actually managed to a specific targets.
Yeah. So I'll add a few words are speaking of take rate.
Quite human minded fluctuation, we're seeing right now.
It's negligible and as you heard Rick Van do you don't focus too much on the fluctuations either increase or decrease of the take rate in there.
In the immediate term I think.
It will be fairly stable in my mind.
And.
Speaking of the specific campaign, the 10 billion in camping arm I would say.
I want to take this opportunity to remind you that.
Not like other platforms. They are more event and festival driven but we are really not that festival Julien so.
The 16 18 event is just a little kind of a trial or for us to participate in it have placed for two training our staff, but all the other campaigns, we launched we afford the fixating during 16, he will offset that.
May last longer or lost a shorter, but basically what I'm trying to say is.
All the campaigns you see today on a nod related specifically to a particular festival.
So.
It shouldn't be there what you should expect it to campaign to be there for some time and.
And our.
Colleagues would decide where and when to change to a new one.
[noise].
Your next question.
Yes. Your next question comes from the line of Charlie Chan from China Renaissance. Please ask your question.
Hi, Thank you for your time here, taking my questions I have a question regarding your C. UQM business. So can you share with US your current status of the C. M business and also what is the value proposition of the products. So if you're a CGM business. So is that just a cheaper alternative Q auto products or it's actually a upgrades of your non branded products then.
Okay. Thank you for your question however.
Well, it's become a C. Now I'm proud to say that our new brand initiative has been very popular and we have received over 6000 applications, thus far and with about 500 companies participating in pilot tests.
And as you know our partnership model for the New brand initiative is Butte.
And open an asset like a matter.
Well, we don't have binding targets set for our partners and it is it really more of a two way process as it will learn from each other to see what the value we can bring to benefit our users.
And during our 618 campaign, we sold over 9 million C. M products and we're also feature to both our new brand initiative.
And the Shanghai Heritage brand initiative partners, such as warrior shoes in B and a flower.
So going forward.
We will continue to deepen our engagement with our manufacturers our platform one of our recent partner as sends an empty seat.
An OTN, who produces over 10 million TV sets annually for brands like Philips and the JVC.
So additive C.
Provides us with information related to their product design and a cost structure and we share with the team.
We share them.
The consumer data and make suggestions on product development and the pricing strategy.
So mtc uses these inputs to further improve their supply chain and can roll out quality products to our users offering great value for money.
So the customized Tvs that they produced for us under the JVC brands.
Which was a lot really which was licensed from the JVC.
[noise] is launched a few days ago and they have sold out of their first two sq use within a few days.
Our selling 1065 inch Fourk TV and a 1562 inch fourk utilities. So these TV sets adjusted tips of the iceberg and there are still many other industries, where we can lock and unlock value through our strong partnerships with merchants.
So further we are developing our logistics technology platform to further help them with supply chain and logistics efficiencies such as packaging route optimization warehousing systems et cetera. So we do hope to bring our holistic upgrade to our partners and and make fundamental change in the vertical value chain of various sectors.
So with that said, it's really a long term goal you shouldn't expect this can happen overnight.
But.
The initial.
Efforts, we have made does give us positive feedback. So this will provide meaningful value.
Not only to our merchants prototype to our users as well so we will.
I expect them to grow.
Significantly in the future and it will become a trend not just to our platform I believe other platform that will follow and it should follow I guess.
In the near future as well.
Your next question comes from the line of choice Chu from Bank of America. Please ask your question.
Hi, good evening, congrats on a solid quarter and thanks for taking my question. My question is related to the progress of our category expansion and development of <unk>, a key categories. What's the what's the key category actually driving our strong growth GMB growth this quarter and a house the development of our signature categories, such as outbreak how chip products and how much. They are now representing our telco GMI and what's the strategy to further on increased year on the strength in these categories bantered around thank you.
Okay. Thank you very much for question Whoa are first of all I want to say that we don't really focus on categories. We focus on users. We're trying very hard to match different kind of product to the user's need as long as our users want those products will just try very hard to bring them onto the platform and make them available with the lowest possible price.
I'm speaking of our agriculture category it is a.
Special category, it's not because we.
So the JV grows that rely on that its just because we start with agriculture or produce at the very beginning of our platform.
We don't disclose we usually we don't disclose the JV breakdown.
But we are encouraged to see agriculture as an important part of our perform.
As I mentioned in the multiple times.
In my shareholder letters and other communications agriculture sector landscape is different in China compared to other countries such as the U.S.
Therefore, we need to take a very different approach to supply of agriculture approved our products at various gathered across China.
And off smaller scale, though in aggregate, it's a very large industry involving hundreds of millions of people Oh.
Therefore, we need to tailor the logistics system the growth cycle, the marketing strategy and a distribution network of this industry to return value to the farmers. So in 2018, we handled.
65 billion RMB worth of agricultural products selling them directly from farmers to consumers.
This year.
We still see very strong growth in the settlement and [noise] with tier one or tier two city uses accounting for 70% almost 70% of the agricultural product or product orders during our 618 camping.
So in 2019.
We are continue.
Our seeing a good runway for sustained growth and a lot of potential for us to help improve industry.
Efficiency.
And.
On the supply side, we are working with both farmers and a local authorities to effective change we have signed the agreement with the renowned province to help a total of 74 impoverished economies and take our comprehensive approach towards reshaping the economic value chain. So for example to help farmers to learn how to sell directly on individual would have provided a training courses our marketing and also provided a agile in pharmacy suggestions utilizing predicted a purchase patterns for fruits and a likely delivery schedules farmers are better enabled to plan their planting schedule, making the production process and more scientific and reducing western.
We are also working with the authorities and agriculture universities to groom agriculture talent in this regard so we hope.
And we do hope that.
We're we're learning when our province can be transplanted into other provinces as well and I also mentioned how will how we are leveraging launches a logistics technology to improve agriculture sector. Just now so over time this will allow more gert and a fresh produce from all parts of China to reach our consumers.
And providing them with even more choice at an affordable price.
We do all of those not only because it's a very good a category very large market. It can't grow our jambi more importantly, we view agriculture as a very special category that has a special meeting to China, which involves.
Hundreds of a million people, whose.
On the food and also affects the daily life.
And their health of the citizens citizens in tier one tier two cities so.
It is a very crowded category, we both view it are very long term investment value.
We're also view this category is a place where a lot of innovation can do that and it should be down and there were also feel this is a category we should take our responsibility and.
Do more social good.
Thank you, ladies and gentlemen, thank you ladies and gentlemen, Unfortunately, we have run out of time for any further questions I would like to have a conference passage response centers. Please continue.
[noise].
[noise], everyone for listening into our call and if you have any follow up questions. IR is always available. Thank you.
Ladies and gentlemen, there does conclude the conference for today. Thank you for participating you may now disconnect.
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