Momo Com Inc

TWSE:8454

Earnings Call Transcript

[Terrisa Liu, executive]

Hi, good afternoon, everyone, and welcome to momo Fourth Quarter Earnings Conference Call. It's great to see everybody 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 our 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 operation highlights, followed by strategic focus. Afterwards, I will jointly share financial performance and business updates for the fourth quarter. Next, Jeff will take your questions during 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]

Thank you, Terrisa. Thank you, everyone, for joining today's call. I will begin with a summary of our performance last year followed by some key highlights from fourth quarter operations. Let's start with the 2024 performance overview. 2024 proved to be a challenging year for the e-commerce industry with growth slowing to a single-digit level due to a variety of factors we have discussed in the past. As a result, momo's annual revenue growth was modest at just 3% year-over-year. Our EC GMV growth was stronger, but overall revenue was impacted by the decline in TV shopping and the application of different accounting principles in our 3P business.

However, we observed a significant improvement in customer metrics including increased number of customers, visits and purchase frequency. This reflects a stronger relationship with our customers and higher satisfaction levels. The 2024 take rate was slightly lower due to changes in product sales mix and the customer trading down behavior. Investment in new business initiatives led to increased operating expenses. However, it was partially offset by improved operational efficiencies.

Now let's move to the fourth quarter's performance. In fourth quarter, we saw retail sales grew only 1.5% year-over-year with e-commerce growing by 2%. Both numbers were below expectations, reflecting a weaker market.

Consolidated revenue reached a record of TWD 33.48 billion, a 31% quarter-over-quarter increase and a 1.9% year-over-year growth. While Y-o-Y growth was modest due to a high comparison base and conservative consumer spending, it remains a solid result.

By business unit, Media revenue decreased by 12.4% year-over-year while E-commerce grew by 2.5% year-over-year. The combined 1P and 3P GMV growth outpaced this growth rate.

We saw stronger performance in Beauty & Healthcare with 6% year-on-year growth and Household 3% year-on-year. While categories like smartphone apparel and luxury goods experienced subdued demand, contributing to a modest 1% year-on-year growth in these segments. Our take rate improved by 40 basis points to 13.8% in the fourth quarter, helped by 3P business and the retail media network. We also achieved a 50 basis point increase in gross margin, reflecting disciplined cost management.

EBITDA reached TWD 1.78 billion, marking a 4.2% year-over-year increase with an EBITDA margin expansion of only 10 basis points to 5.3%. It was due to the higher operating expenses from new business investments including marketing and technology spend.

Free cash flow totaled TWD 4.3 billion, supported by operating cash flow of TWD 6 billion.

In Q4, we also saw continued strong customer engagement with monthly average user growing by 6% year-over-year and a quarterly active user rising by 11% year-over-year. This result reflecting the ongoing success of our enriched customer -- enriched product offerings and enhanced data-driven capabilities.

Regarding new business development and the 2025 growth strategies, our 3P business launched in mid-last year is scaling rapidly with over 1 million SKUs and thousands of merchants on board already.

momoAds, our retail media network, continues to gain with merchants, and we are both expanding our sales team and developing new features. We are confident in the long run we can see the value and the profit potential of this business.

On the logistics front, the launch of our Southern Distribution Center in November last year positions us well for 2025. Our goal is to integrate the SDC with the Northern Distribution Center transition to a more efficient 2-hub operation. This will significantly improve customer service level, particularly in Southern Taiwan and further streamline operations through automation and data technology. Our logistics investment will also expand our fleet to enhance last-mile delivery speed and improve customer experience.

Lastly, let's touch upon strategic priority for 2025. As we move into 2025, our focus is on driving long-term value through the following strategic priorities: first, grow market share across both 1P and 3P businesses; second, leverage customer service and logistics as a competitive advantages; third, utilize technology to foster new business opportunities and operational excellency.

Our primary focus for this year is GMV growth, and we will continue investing in 3P and retail media network. We will elevate the service quality and streamline processes to maintain our position as the most preferred and trusted e-commerce brand.

Additionally, we will work with our partners on ESG initiatives with a particular focus on our green living (sic) [ Green Life ] membership program.

Now I will turn the call over to Terrisa.

[Terrisa Liu, executive]

Thank you, Jeff. We closed fourth quarter with consolidated revenue of TWD 33.48 billion, reflecting to a 1.9% year-over-year increase compared to TWD 32.85 billion over the same period in 2023, achieved another record high performance. This is primarily driven by EC revenue of TWD 32.50 billion, accounting for 97% of total revenue and delivered a 2.5% year-over-year increase.

Our Media business revenue stood at TWD 961 million compared to TWD 1,097 million the same period in 2023.

Supported by contribution from new business initiative, company take rate improved to 13.8%, up from 13.4% in the fourth quarter 2023. Through data-driven technology, automation, operating efficiency enhancement and disciplined cost management, our gross margin increased to 9.8% compared to 9.3% during the same period in 2023.

In terms of overall EBITDA margin, increased by 10 basis points, primarily due to higher investment in strategic growth areas. By business segment, E-commerce EBITDA margin increased by 10 basis points and Media EBITDA margin expanded significantly by 230 basis points.

Net income to parents achieved TWD 1.11 billion with earnings per share of TWD 4.40 based on 252 million diluted outstanding shares, which primarily attributed company's operating profit of TWD 1.44 billion, a 4.3% year-over-year increase.

On a full year basis, we achieved another record-breaking annual revenue of TWD 112.5 billion, marking a steady year-over-year growth from TWD 109.2 billion in 2023.

EBITDA achieved TWD 5.65 billion compared to TWD 5.59 billion in 2023, with the EBITDA margin at 5% compared to 5.1% a year ago.

Our consolidated net income after tax was TWD 3.5 billion. That brings 2024 earnings per share reported at TWD 13.69 per share.

Moving on to the balance sheet. As of the year-end 2024, our cash position stood at TWD 5.1 billion compared to TWD 3.3 billion in the third quarter and TWD 6.3 billion in the fourth quarter of 2023.

Regarding cash flow and CapEx, we generated TWD 3.16 billion in cash from operations, spent TWD 488 million in CapEx. Overall, our free cash flow increased to TWD 2.67 billion, reflecting 34.7% year-over-year increase, primarily driven by 26.2% increase in cash flow from operation.

The Board of Directors of momo has approved a proposal to distribute a dividend of TWD 12.3 per share along with additional TWD 0.5 cash dividend and TWD 0.5 stock dividend from legal reserve and capital surplus to shareholders, leading to a total dividend of TWD 13.3 per share. With a payout ratio of 97%, this will be submitted to shareholder approval on May 27.

Turning to our E-commerce business. Our top 5 product category showed modest growth, reflecting prolonged weak consumption -- weak consumer consumption and the shift in customers' preference towards low-price alternatives since second quarter 2023. Notably, Beauty & Healthcare remain a growth driver, delivering 6% year-over-year growth with Household follow with a 3% year-over-year increase. This result reflected our ability to capture shifting customer trends and deliver value at scale.

We remain focused on driving customer engagement and retention on scale, supported by increased selections from our 3P business, which was just launched in May 2024 investment in acquisition strategy and remain our lead as the most preferred and trust e-commerce platform that continue to resonate with our customers. As a result, monthly active users increased by 6% year-over-year, demonstrating our capability of attract and retain a growing customer space.

Meanwhile, customer time spend grew by double digits year-over-year, reinforced the strength of our content, personalization efforts and platform enhancement. Importantly, active user growth accelerated in the fourth quarter, reaching a new high at 11% year-over-year increase, the strongest since first quarter 2023.

Moving on to logistic development. You can refer to our presentation slide, Page 12. In 2025, we expect to own a total of 39 distribution center, mainly warehouse and satellite warehouses across Taiwan, down from 50 in 2024. As our SDC continue to scale operation, we will strategically phase out temporarily leased warehouse to enhance overall cost efficiency and operational effectiveness. This transition allows us to integrate and streamline 2-hub operation and the rest warehouses, improving our logistic efficiency inventory management and overall supply chain optimization through automation and data-driven technology.

Let me touch on our green consumption initiative. With sustainability becoming increasingly important worldwide, we are actively promoting green operation and expanding ESG initiatives. Since launched, momo Green Life in 2018, momo has worked closely with the brand partner to provide more eco-friendly products. In September 2023, we introduced Green Life membership program to encourage consumers to adopt greener shopping habits, for example, choosing circular package and consolidated shipping options, inviting customers to actively practice environmental stewardship in their daily life. By the end of 2024, Green Life membership has increased to nearly 700,000 people, an impressive 107% increase from the previous year.

Earlier this year, we also introduced the carbon reduction dashboard, a tool that helps customers to visualize their eco-friendly actions and encourage greener shopping habits. We are very excited to see this initiative and look forward to driving even more sustainable growth in the future.

Finally, let me talk about this year's CapEx budget and also the depreciation. You can refer to the presentation slide -- Page 9. We expect our CapEx budget of TWD 686 million compared to TWD 911 million a year earlier. About 35% will be allocated to distribution centers and warehouse facility, and about 56% will be spent to IT equipment, expansion and upgrade. Regarding SDC depreciation, it will be around TWD 180 million over the full year of 2025.

This concludes our key message, and thank you for your attention. have reserved online for you to dial in. Should you wish to ask any questions in the Q&A session, please dial in. Operator, we are ready to take questions.

[Operator]

[Operator Instructions] We have a question from Daniel with UBS.

[Daniel Chen, analyst]

This is Daniel from UBS. Could you hear me?

[Jeff Ku, executive]

Yes, please.

[Daniel Chen, analyst]

Okay. So my first question is regarding the gross margin in Q4. So your Q4 gross margin expanded 0.5 percentage points compared to Q4 '23. Could you please quantify out of this 0.5 percentage point, how much is contributed from disciplined cost management and how much can be attributed to the support of new business?

[Jeff Ku, executive]

Well, I don't have that detailed number yet. But I think probably the major part will actually come from the contribution of our 3P and advertising business because as you know most of the 3P will only recognize the commission part as a revenue. So most of the revenue directly come down to the profit.

As for the added business, by natural, it doesn't have much of the cost, except the direct labor and the technology. So most of the revenue also will come down to the gross profit. And so -- and I think also a small part from some savings in optimizing our logistics and delivery services. I think that overall contributed and resulting in that 0.5% improvement.

[Daniel Chen, analyst]

Thank you, Jeff. So given that most is contributed by the new business, which is the 3P and also the advertisement, would it possible for you to share any numbers regarding the new business, like GMV from 3P or sales from 3P commission advertisement. These kind of numbers, would it be possible to share with us?

[Jeff Ku, executive]

I think it's still too early to premature to disclose those numbers, but they are ramping up very quickly, particularly on the 3P part. That's only thing I can say at the moment.

[Daniel Chen, analyst]

Okay. And lastly, is there any quantitative guidance for the sales growth and operating margin for 2025?

[Jeff Ku, executive]

No, we don't get prepared to give any financial guidance for 2025. But however, we want to emphasize again, first, the most important thing this year is to drive the GMV, particularly on the 3P part, but we also would like to see some increase on the 1P part. But in terms of the growth rate, we think the 3P should be much higher than 1P.

[Daniel Chen, analyst]

Okay. And one last follow-up. So I just want to make sure our key focus now is still finding the balance between sales and profitability or are we shifting more towards the profitability side?

[Jeff Ku, executive]

We are shifting a little bit more weight on the growth side. We want to grab the opportunity to make our GMV growth again because we have invested a lot in the new platform. So we want to fully utilize the benefit of the new platform and engage more in our customers, which has shown some positive number last year. As you can see from our last year operational results, the number of users and also their buying frequency have all shown the increase. I think they are major result from the enriched customer product offering. And as we all know, there are many introduce by our 3P business. And also, we attracted some new segments or customers, particularly in the young segment, so all that actually help us to gain the increase of the number with the customer and the rebuying frequencies. So that trend to continue to this year.

[Operator]

And the next question comes from Angela with Citi.

[Hui-Chao Hsu, analyst]

Can you hear me?

[Jeff Ku, executive]

Yes, please.

[Hui-Chao Hsu, analyst]

And for third-party business, I wonder if there is any like target or what are the major KPIs, you and your team closely watching for this year?

[Jeff Ku, executive]

We do have an internal target we want to achieve, but I just don't think it's -- we are not really to discuss to the outside yet.

[Hui-Chao Hsu, analyst]

Got it. And for third-party and momoAds, do we still continue investing more resources in both business? Or can we assume that the largest investment for both businesses has done last year?

[Jeff Ku, executive]

We'll continue to investing both in the technology and the marketing. We have to -- I think in terms of the technology part, I think we have -- our platform has grown to a stage, I think, it is competitive enough. However, we want to make it better, particularly to utilize more of the data technology and to help us streamline the operation.

And other part is the marketing, as I said, because the GMV growth is important strategy of this year, which means we also will spend more in terms of the marketing and the drive more of the new customer and also the usage as well.

[Hui-Chao Hsu, analyst]

Got it. And for the momoAds, can you walk us through how it works and how do we sell on this platform to our brand? And how do we charge the expenses, et cetera?

[Jeff Ku, executive]

So the momoAds, the major product so far is search. So we sell the keyword and through bidding system. So merchant want to buy that keyword, and they will use this system to set the target price they would like to buy and what kind of a keyword they want to cover. And the machine will work out a suitable bidding price based on the click-through rate and what kind of return they would like to be looking for. So it has a complicated logic behind to help them to manage their marketing budget. So most of our ad revenue currently came through the search. And we are gradually gaining the share from the display ad as well.

And so this year, two things for us were very important. First, we need to have more inventory internally. And also, we will cooperating with outside media so that we can place ad beyond momo's own properties.

And secondly is we need to have more sales to cover those customers because there are some major customers, they need more intensive sales help and also to formulate different marketing strategy to help them to target the customer or product as they would like to achieve. So we think we still have a good potential to grow this business beyond current level. I think we're still in the very early stage.

[Operator]

And the next question comes from [ HC ] Chen with Allianz Global Investors.

[Unknown Analyst]

Jeff, Terrisa, can you hear me?

[Jeff Ku, executive]

Yes, please.

[Unknown Analyst]

I want to ask about -- so Jeff, you mentioned -- just want to make sure, so the -- in terms of the new business, do you see 3P as the biggest growth driver this year and then followed by ads? Is that correct? And how about membership?

[Jeff Ku, executive]

Let me to clarify this. I think 3P is going to be a big help in terms of driving the GMV. However, the ads will help on the -- our profit side because we enjoy a good margin. However, let's not forgetting we still have a 1P business. It has a good size in terms of the revenue. So we are not deemphasize that. So we also push on to grow more on the 1P business. So both of them -- so 1P and 3P actually together going to help us to grow more of the new customers and also deepen the engagement with them.

I don't know what kind of a membership you are referring about. If you're referring the -- our moPlus membership, which is a paid membership, we -- as last reported, we have more than 20,000 paid members. So far, we still hold that number now is well beyond 20,000, but I cannot give you that exact number yet.

However, this year, we will continue to enrich the members benefit to make sure it's still a valuable program they would like to hold on. And maybe we will come up with some other tier of the different membership program, but we haven't decided yet.

[Unknown Analyst]

Okay. Just to follow up on the membership. So I think last call, we're probably talking about 10,000 members. And right now, they have well 20,000. So just curious, is that kind of trajectory to think about? So the growth rate still quite good quarter-over-quarter or it has been kind of stable after you reach 20,000?

[Jeff Ku, executive]

Currently, moPlus membership is, I think, it has a high -- it's kind of a design for the VIP customers is an annual fee of around TWD 2,400, so I think it's the kind of the premium membership program. So in order to enlarge the membership, we need to come up with designs. And so I said we -- that's part of our plan, but we don't have the sales schedule yet.

And yes, if we can have the paid -- if we can enlarge the paid membership, I think that will be also a good process for our overall membership management.

[Unknown Analyst]

Okay. Got it. And my final question goes to the customers. So it looks like your users grew still pretty good. I'm just curious what kind of AOV are from these new incremental users versus your corporate average?

[Jeff Ku, executive]

Sorry, what do you mean AOV?

[Unknown Analyst]

Well, the basket or the ticket size for this compared to your core members -- users?

[Jeff Ku, executive]

Oh, yes, ticket size, right? Well, not much. difference actually, except the new customer from the young segment, it will have a lower ticket size, and that's what we actually anticipated. But one more word about the increased MAU and the increased frequency. However, on the downside of this is for the last year, our ticket size actually dropped. So we have more customers buying more frequently, but however, the average ticket size dropped. So the overall ARPU for every user pretty much maintain the same level in terms of the previous year.

So I think we're still in the situation customers, not that comfortable. They are still concerned about the economic uncertainties, which make them more conservative in terms of what to spend and how to spend. And on top of that, they still -- we still see increased number of the outbound travel. I think that also can have some impact on their spend -- the amount they can spend domestically. So we see that trend will continue for a while. So our main focus is mainly is to drive the purchasing frequency through the help of our 3P business.

[Unknown Analyst]

Yes. So Jeff, I just want to make sure. So for your new users besides the younger generation, do you also see the new users coming from different cohorts, let's say, the spending usually with lower tickets? I'm just -- I guess my question is, as you ramp up your 3P business, I would guess you probably could attract more users with lower spending power, but I'm not sure if that's, that's something you've seen.

[Jeff Ku, executive]

Well, we see that from the young segments, but we don't see that from other segment. Actually, we are -- very interesting, we are also expanding on the older group. Actually, we have more customers at the age beyond 50, actually. They have a very good spend on us. So except the young segment because naturally, they spend less or they have a lower spending power in terms of the different customer segment, except that we don't see any major difference in terms of new and old.

[Operator]

[Operator Instructions]

[Terrisa Liu, executive]

Okay. All right. Thank you, Jeff, and everyone. This concludes our QA session. So thank you, everyone, for joining us today. We hope everyone continues to stay well, and we hope you to join our next quarter event again. Goodbye, and have a good day.

[Operator]

Thank you for joining the conference. You may now disconnect. Goodbye.