Momo Com Inc

TWSE:8454

Q1-2025 Earnings Call

[Operator]

Good afternoon, ladies and gentlemen. Welcome to the conference call. Terrisa, please begin your call, and I'll be standing by. Thank you.

[Terrisa Liu, executive]

Good afternoon, everyone, and welcome to momo's First Quarter 2025 Earnings Results. It's great to see everyone once again. This is Terrisa, momo's Head of Investor Relations. Today's event is being webcast live through our website, where you can also download the earnings report and the latest presentation.

The format for today's event will be as follows: First, our President, Jeff, will provide an overview of our operational highlights, followed by management's key messages. Afterwards, I will jointly share financial performance and business updates for the first quarter. Next, Jeff will take your questions during the Q&A session.

As usual, I would like to remind everyone today's discussion may contain forward-looking statements that are subject to significant risks and uncertainties, which could cause actual results to differ materially from those contained in the forward-looking statements. Please refer to the safe harbor notice that appears on our presentation.

And now I would like to turn the microphone over to Jeff.

[Jeff Ku, executive]

Hello. Good afternoon. Thank you for joining our 2025 first quarter earnings call. Let me begin with an overview of the industry environment. In the first quarter, the total retail sales reached [ TWD 21.19 ] trillion, representing year-over-year growth of 0.9% only. This marks a continued deceleration from 1.6% growth in first quarter and 3.8% in the same period last year, making it the sector's weakest performance since third quarter of 2021.

The slower growth reflects widespread concern about economic uncertainty, which has in turn impacted consumer confidence. In e-commerce, sales remained flat, underperforming physical retail from weaker demand for durable goods and increased spending on overseas travel. The competitive landscape remains largely unchanged. Some categories such as diapers, toilet papers and others continue to experience price competition. We have also observed an increase in cross-border shipments.

Despite macroeconomic challenges, continuous competition and a decline in our TV shopping sales, our total GMV still achieved year-over-year growth. Our 3P business continues to deliver good performance, enriching our long-tail product portfolio and supporting GMV momentum. Enhanced data-driven capability has improved conversion rates, resulting in steady transaction growth. Additionally, repeat order growth remains healthy, underscoring the resilience and efficiency of our platform. User engagement metrics were also encouraging. Monthly active users rose 11% year-over-year, and the quarterly active users increased 7.5%. We also saw growth in male and younger customer segments.

Now let's look at the financial results. In Q1, momo reported consolidated revenue of TWD 26.4 billion. Operating profit came in at TWD 786 million, and the net income attributed to the parent company was TWD 860 million, translating to earnings per share of TWD 3.41. These results reflect an increase in investment in marketing, technology and new business initiatives.

Our balance sheet remains strong with [ TWD 24.5 billion ] in cash and cash equivalents, providing a good foundation for ongoing operations. From a product category perspective, we saw strong momentum in laptop PCs, cameras, gold-related items, health supplements and beauty products. In contrast, demand was softer in fashion, apparel, furniture, kitchenware and beddings.

In April, we expanded the reach of momo's ad network by integrating both on-site and off-site media channels. This new platform allows brands to streamline marketing activities, run multichannel campaigns and increase return on ad spending. Our 3P business continues to onboard new merchants and broaden product selections, enhancing the one-stop shopping experience for customers and increasing our penetration among younger users. Initial results are promising and we will continue to iterate and improve. Our moPlus membership program also continues to grow steadily. Members are shopping more frequently and spending more, validating the value of the program.

Looking ahead, as we mentioned earlier this year, our primary focus remains on driving long-term growth, and we will continue to invest in those strategic initiatives to support that objective. And at the same time, we are aware of potential macroeconomic headwinds that could impact our performance. That said, we are confident that with disciplined execution and the agility to adapt as needed, we can effectively balance growth and profitability and deliver long-term value to our shareholders.

Thank you once again. And now I will hand over to Terrisa.

[Terrisa Liu, executive]

Thank you, Jeff. We will now walk you through our consolidated financial and operational performance for the quarter, highlighting category dynamics and customers' behavior trends, provide updated on our strategic initiatives and close with a review of our balance sheet, cash flow and capital investment.

Let's begin with top line performance. We closed first quarter with consolidated revenue of TWD 26.4 billion. Of this, e-commerce contributed TWD 25.55 billion. Media business contributed TWD 850 million. During the quarter, consumer sentiment remains subdued. The operating environment this year was notably more constrained, influenced by reduced consumer spending, persistent inflation pressures and ongoing macro uncertainties. While the headline growth appears modest, we want to underscore the positive underlying development across several strategic areas.

First, our 3P business and retail media network demonstrated solid progress. This growth came through expanding product assortment with 3P SKU expanding to 2 million. More importantly, investment in personalization and targeting technology. This effort lead to a sustained increase in transaction volume, indicating we are effectively enhancing the quality of shopping experience for customers while driving greater efficiency for brands and merchants.

On GMV and ticket size dynamics, as expected, we saw a shift in product mix. High-priced product sales declined, a clear reflection of cautious consumer behavior. At the same time, there was an increased mix of 3P products, which tend to have lower ASP. As a result, our average ticket size declined by 6.4% year-over-year. However, this was largely offset by a 7.5% increase in active users, reflecting our ability to grow the user base and keep customers engaged. The net result was stable GMV growth, underscoring the resilience of our business fundamental in navigating a challenging operating environment.

Let me now turn to the category performance. We observed stronger demand in several key categories. Laptop PC and camera benefiting from continued demand related to travel and content creation. And also the gold-made items continued to see a strong uptick in sales, likely reflecting increased interest in alternative investments amid economic uncertainties.

Beauty and health supplement products continue to outperform, thanks to rising consumer awareness around health and wellness. On the other hand, fashion and home-related categories such as apparel, furniture, kitchen, dining and bedding segments show weaker demand. This was partly due to the lack of a clear seasonal transactions, which lead to a weaker consumer appetite in this area and the promotion calendar was less favorable compared to the prior years and the discretionary spending remained light.

On the customers' engagement front, we continue to make meaningful progress and 11% Y-o-Y increase in MAU. We also saw an uptick in purchase frequency, supported by improved targeting personalization and seamless shopping journey. Moreover, we have been successful in attracting and retaining male and younger customers, who are showing higher engagement and strong repeat -- stronger repeat rate. This shift in customer profile are encouraging as they support a more at [ TWD 1.14 ] billion compared to TWD 1.47 billion in the same period last year.

Let me unpack the drivers of this variance. This primarily reflected our strategic investment in several areas: marketing, technology infrastructures and new business initiatives. These investments are intentional and necessary, designed to strengthen our platform, expand our addressable market and ensure we are well positioned for the long-term growth. We believe this disciplined approach to investing despite short-term margin pressures will yield greater shareholder value in the long term.

Net income to parent for the quarter stood at TWD 860 million, composed of company operating profit of TWD 786 million and non-op gains of TWD 16 million. Also tax credit of TWD 218 million, which we recognized from the Southern Distribution Center BOO project, and there will be a remaining TWD 19 million in tax credit to be recognized in the following quarters.

Turning to the balance sheet. Our cash position remains very solid, and our capital positions provide us flexibility to invest in the infrastructure and growth. Regarding CapEx for the quarter totaled TWD 565 million, primarily allocated as follows: TWD 121 million for the Southern Distribution Center constructed projects, TWD 285 million for the central distribution center construction project and TWD 92 million for the automated storage equipment procurement. These investments are crucial to enhance our logistic efficiency, fulfillment speed and let it all are the cornerstone for our long-term competitiveness.

In terms of fulfillment and delivery updates, in the late fourth quarter, we launched our Southern Distribution Center, which is now directly shipped high-frequency items. This helps take some of the pressures of our Northern Distribution Center and improve overall logistic efficiency. It is already making a difference in the delivery experience of our customers.

On top of that, with the NDC freed up a bit, we are gaining more warehouse spaces, which help us optimize both delivery speed and cost. Looking ahead, we plan to continue expanding our in-house transportation fleet, especially in the Central and Southern Taiwan. The move will be a key to strengthen our logistic competitive advantage, and we expect it will allow us to expand our 1-day delivery services outside the Northern Taipei area.

Last, just a reminder, the Board of the Directors of momo has approved a proposal of distribute a dividend of TWD 12.3 per share, along with additional TWD 0.5 cash dividend and TWD 0.5 stock dividend, leading to a total dividend of TWD 13.3 per share. This translating the payout ratio of 97%. The proposal will be submit for shareholder approval on May 27.

That concludes our first quarter results briefing. We are now invite your questions. We have reserved the phone lines for you to dial-in. Should you have any questions in the Q&A session, you are also welcome to send your questions via a chat box on the website page. Operator, we are now ready to take questions.

[Operator]

[Operator Instructions]

[Terrisa Liu, executive]

And actually, I have one question from Bank of America. The question is they want to know the near-term and long-term Taiwan e-commerce penetration outlook and what are the drivers behind it?

[Jeff Ku, executive]

Well, we still believe the long-term growth. However, as you all know, recently, we are impacted by a lot of the uncertainties originally from the micro economy. So I think until that come down and consumers resume the confidence, we probably will see that slow growth for a while. However, I don't think that's going to impact our long-term view on the e-commerce penetration rate in this market.

[Terrisa Liu, executive]

Okay. Right now, we are ready to take the first question from the phone line.

[Operator]

And our first question comes from Daniel Chen with UBS.

[Daniel Chen, analyst]

Jeff and Terrisa, this is Daniel. So my first question is on the Q1 gross margin. So other than the unfavorable product mix and also less sales from high margin TV business, do you see any other result or factor that lead to gross margin year-on-year decline? For example, are you responding to the price competition from your competitor on the household category like the toilet paper and the diaper as you mentioned?

[Jeff Ku, executive]

Well, I think the main reason is from the product mix, particularly for those with the high margins, for example, those luxury goods and some of the durable items. But also the competition play a role in that as well. It certainly drives down part of the product margins. And yes, I think that's probably the main reason you can see the gross profit margin drop in the first quarter.

And one more point to add is, we also try several new marketing techniques in the first quarter to try to drive a different product sales. And that may not prove to be that effective. However, it does have a consequence which is over. We may offer some unnecessary discount in some of the marketing activities.

[Daniel Chen, analyst]

I see. And also a follow-up on the marketing expense you just mentioned. So as you mentioned, the marketing expense increased quite strongly year-on-year in Q1. So is this just in line with our plan in the beginning of the year that we are prioritizing growth over profitability. So we spend more on marketing plus the -- that new marketing technique you just mentioned? And could we assume like such strong momentum into the rest of the year?

[Jeff Ku, executive]

Yes, I remember last time when we had this conference call, we mentioned that we would like to drive the GMV growth. So as a result, we have been engaging in all the different marketing activities to drive those sales. We have seen some results. However, we also spend more money. But those money are within our plan. So they are planned spending. And however, the environment may not be friendly to us in the first quarter. So we also made some modification in terms of how we're going to do it.

And I think that kind of modification going to continue to the rest of the year. But once again, I have to emphasize, we still want to grow. So growth is still a priority. However, because under this kind of market environment, we need to do it more smartly. So we will see how the market reacts and spend money accordingly.

[Daniel Chen, analyst]

I see. And just to double check, so under such like macro uncertainty, as you like elaborate, our strategy for this year is still growth over the margin, right?

[Jeff Ku, executive]

We will put the profitability always in mind. So we will try to find a good balance there. And so growth is important, but that is a long-term goal. So long-term strategy hasn't changed. Short-term tactic, we might do some modification and so that can suit the environment better.

[Operator]

[Operator Instructions]

[Terrisa Liu, executive]

All right. Thank you, Jeff, and everyone, for your participation. This concludes our Q&A session. We appreciate your continued support and look forward to speaking with you again next quarter. Stay well, and have a good day.

[Operator]

Thank you. Thank you for your participation. This concludes our conference. Goodbye.