BlueCity Holdings Limited
Q2 2020 Earnings Call Transcript

Published:

  • Operator:
    Ladies and gentlemen, thank you for standing by, and welcome to the BlueCity’s Second Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instruction will follow at that time. As a reminder, we will be recording today’s call. [Operator Instructions] Now, I will turn the call over to Lingling Kong, Head of Investor Relations for the company. Ms. Kong, please proceed.
  • Lingling Kong:
    Thank you, operator, and hello, everyone. Welcome to BlueCity’s second quarter 2020 earnings conference call. Joining us today are Mr. Baoli Ma, Chief Executive Officer; and Mr. Ben Li, Chief Financial Officer. We released results earlier today. The press release is available on the company’s IR website at ir.blue-city.com, as well as from Newswire services. A replay of this call will also be available in a few hours on our IR website. Before we proceed, please note that this call may contain forward-looking statements made pursuant to the Safe Harbor provisions of the Private Security Litigation Reform Act of 1995. These forward-looking statements are based on management’s current expectations and observation that involve known and unknown risks, uncertainties and other factors not under the company’s control, which may cause actual results, performance or achievements of the company to be materially different from the results, performance or expectations implied by these forward-looking statements. All forward-looking statements are expressly qualified in their entirety by the cautionary statements, risk factors and details of the company’s filings with the SEC. The company does not assume any obligation to revise or update any forward-looking statements as a result of new information, future events, changes in market conditions or otherwise, except as required by law. During today’s call, management will also discuss certain non-GAAP financial risk measures for comparison purpose only. For definition of non-GAAP financial measures and the reconciliation of GAAP to non-GAAP financial results, please refer to our 2020 second quarter financial results news release. Also please note that unless otherwise stated, all figures mentioned during the conference call are in Chinese renminbi. With that, let me now turn the call over to our CEO, Mr. Baoli Ma. Mr. Ma will deliver opening remarks in Chinese. I will then translate his remarks. Finally, our CFO, Mr. Ben Li, will take over to discuss our business and financial highlights. Mr. Ma, please go ahead.
  • Baoli Ma:
    [Mandarin]
  • Lingling Kong:
    Hello, everyone. Thank you for joining our second quarter 2020 earnings conference call today. We are thrilled to host our first call as a public traded company. Our successful IPO was a significant milestone in our long journey, illustrates [ph] capital for growth and significantly increased our visibility. We are one of the world’s leading providers of online services to the LGBTQ community, a huge market according to Frost & Sullivan in 2018 over 450 million people worldwide self-identified as LGBTQ. We are dedicated to providing comprehensive lifetime services that satisfy the needs of our members. Our products and services include location-based social networking services to create a safe online community, AI-based live streaming services to make more personalized recommendation to members with interactive features, health-related consulting services and products that keep our members informed and healthy, family planning services that help our members starting their family journey and public interest initiative to find HIV research and prevention. As of June 30, 2020, our Blued mobile app had approximately 54 million registered users. Global monthly active users for the quarter reached 6.4 million, an increase of 11.2% year-over-year. Being a public company, we’ll further broaden our user base and help us to connect with the LGBT community globally. We aspire to make a wider impact in the world and the way we live our passion and execution capability will enable us to achieve profound success in the future.
  • Baoli Ma:
    [Mandarin]
  • Lingling Kong:
    Our commitment to connect and serves the sub-groups within the LGBTQ community is demonstrated by our recently completed acquisition of LESDO, a leading location-based social networking service provider servicing the lesbian community in China. Lesbian is an important sub-group within our community, with nearly 200 million lesbian globally, a 38.5% of the LGBTQ population. In China, the lesbian market is fragmented, with many small service providers lacking the ability to do sustainable product development or provide consistent services. LESDO represents a great opportunity for us to enter and consolidate the lesbian market. We will continue to enhance and improve services and deepen the connection within the community. A key element of our growth strategy is to establish a multi-brand platform that connects and serves multitude of growth within the LGBTQ community. LESDO is our fourth strategic move to execute the element of our strategy.
  • Baoli Ma:
    [Mandarin]
  • Lingling Kong:
    As we expand our business globally, our initiatives overseas are prudent. We evaluate market readiness, local market size and geopolitical influences before market entry. We believe the overseas market opportunity is huge, but we will selectively expand only to markets that meet our strategic criteria. Meanwhile, we will continue to strengthen our leading position in existing markets and improve our monetization capabilities. Last but not least, we are proud to be ranked among the top companies for corporate social responsibility, or CSR. Since day one, CSR has been rooted in our brand DNA, and it’s an important aspect of our culture. We encourage you to read our first ESG and CSR reports, which we issued this month. Those two reports outlines our commitment to social responsibility and sustainable development.
  • Baoli Ma:
    [Mandarin]
  • Lingling Kong:
    Now, let me turn the call over to our CFO, Ben, who will provide details of our business and financial performance.
  • Zhiyong Li:
    Thank you, Lingling. Thank you, Mr. Ma, and thank you, everyone, for joining our call today. As Mr. Ma just mentioned, we successfully completed our NASDAQ IPO, raising approximately US$85 million in gross profit. Our solid cash position gives us extra strength and flexibility to expand into new selected markets, address new groups within the broader LGBTQ community via acquisition and invest in technology, products and services. We got off to a great start as a newly public company. Despite the COVID-19 outbreak, slow economic recovery in China and geopolitical uncertainty, we delivered solid second quarter results anyway. Revenues were RMB247.4 million, up 32.2% year-over-year. Monthly average users for this quarter on the Blued app grew 11.2% year-over-year, reaching 6.4 million. Notably, nearly half of our MAUs are outside China. Total paying users increased to 58.5% year-over-year to 458,000, up from 289,000 in the second quarter of 2019. Net loss for this quarter was RMB3.3 million, significantly improved from the net loss of RMB12.2 million in the second quarter of last year. The better bottom line was due to higher revenue, favorable revenue mix, as well as better operational efficiency. In addition to solid financial results, we executed our strategy with the acquisition of LESDO, as Mr. Ma just mentioned. This acquisition marks the significant milestone in implementing our strategy to serve sub-groups within the broader LGBTQ community. Based on extensive research of the lesbian market, we found that lesbian users behaved similarly to our male users. They present strong user engagement and intending to engage in deeper emotional connections using this platform. They also have a greater willingness to pay for high-quality services. As we integrate LESDO, we will leverage our years of operational experience, strong financial resource and advanced technological platform to drive business development. This acquisition is just the beginning of our multi-brand, multi-demographic strategy. It will enable us to test, learn and build a powerful platform that further leverages and optimizes our operation system to support each unique, recognizable brand and service in each specific group of our community in the future. LESDO will build the foundation for the success of our future acquisitions. Through acquisitions, we can broaden our community beyond homosexual men and refine and enrich our service offering to drive further masturbation opportunities. We aim to serve LGBTQ community globally with comprehensive lifetime services. Over the past few years, we have executed our clear expansion strategy in particular. We have penetrated overseas markets by leveraging our unique products and services offered through the international version of Blued app. We start with a strong and centralized technology backbone, augmented by localized regional operations. Currently, we are the leading online LGBTQ platform in India, Korea, Thailand and Vietnam. Moving forward, we continue to build our global presence and improve brand awareness internationally. In this vein, we held our first-ever StayProud
  • Operator:
    Thank you so much. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] And the first question comes from the line of Laura Champine from Loop Capital Management. Laura, your line is now open.
  • Laura Champine:
    Thanks for taking my question and congratulations on the IPO and continued strong growth and better profit performance in the second quarter. My question is on the membership line, obviously, more than doubled year-on-year, but it was a little bit light of where we thought it would be. Can you talk a little bit more about your prospects converting memberships to paid memberships and what your initiatives are to do that?
  • Lingling Kong:
    Hi, Laura, this is Lingling. Let me to translate your question in Chinese, and Mr. Ma will help me to address. [Mandarin]
  • Baoli Ma:
    Okay. [Mandarin]
  • Lingling Kong:
    Hi, Laura, just let me to translate [indiscernible]. And you can see that in the second quarter, revenues from membership services grow quite significantly. And this – thanks to our diversified products offering to give – to provide better experience to our users. In going forward, we will continue to refine our products and continue to add more features to the membership services in order to try while paying ratio. In addition that – you can see that currently, majority of our membership service revenue came from Mainland China. And go – we think that opportunity for overseas market is huge. We will continue to roll out the model and try to enhance monetization capability overseas.
  • Laura Champine:
    Thank you.
  • Lingling Kong:
    I hope that answer your question, Laura.
  • Laura Champine:
    Yes. Thank you. And the – my last question is on the LESDO acquisition. Can you comment more on the history of that app and the number of MAUs and DAUs? Anything more you can tell us about average user stats, would be great?
  • Lingling Kong:
    Hi, again, let me translate the question, Laura. [Mandarin]
  • Baoli Ma:
    [Mandarin]
  • Lingling Kong:
    Hi, Laura, I’m very happy you bring this question. First of all, our mission is to be the service provider for all sub-groups of the LGBTQ community. And LESDO – for LESDO, it is a leading LBS networking service provider in China and has a long history of operation. Their founder and the team of LESDO, they have deep, mainly our lesbian and they have deep understanding and years of experience in the market. We – and going forward – and they also have achieved quite good market awareness during the past years, such as they produce short films and videos that is widely recognized in the market. But due to some lack of financial support, so right now the size of LESDO is currently small. And we believe that we will provide them the financial support, technological assistance and fully leverage out each other’s operating experience to deliver better service to our members. And as I said, due to – as I said earlier, due to the – the size is relatively small of LESDO at the current stage. But we have fully confident that, that for the team – for our team to work together, we will achieve quite remarkable progress in the coming years.
  • Laura Champine:
    Thank you.
  • Operator:
    Thank you.
  • Lingling Kong:
    Operator, next please?
  • Operator:
    Yes. And our next question comes from the line of [indiscernible] from Oppenheimer. Your line is now open.
  • Unidentified Analyst:
    [Mandarin] Okay. I will translate it myself. Good evening, management. Thanks for taking my question. So I have three questions. The first is about MAU and paying user growth. Our paying user grow pretty nicely this quarter, but MAU grow a little bit slower than that. So I was wondering what is our strategy in the last couple of quarters or mid to long-term? What is our strategic focus? Would that be MAU growth or paying user growth? And my second question is about second-half guidance. It seems our second-half guidance imply our growth, revenue growth is going to accelerate from second quarter. And so I was just wondering what was the – what is the fact that the driver behind this acceleration? Is that related to our last two acquisition? Or if it’s not related to that, which line of the revenue would it be live streaming membership is going to accelerate in the second-half? And my third – and my last question, I want to follow-up on the last two acquisition. I want to know a little more about how much we spend to acquire the company? And then what is the strategy going forward? Would that be – would that grow to apps as successful as the Blued app we have today? Thank you very much.
  • Baoli Ma:
    [Mandarin]
  • Zhiyong Li:
    [Mandarin]
  • Lingling Kong:
    Hi, [indiscernible]. Just let me translate, Mr. Ma’s answer first, okay? And in terms of MAU and paying user growth, yes, you can see accelerated growth in our – in number of paying users. But that’s not necessarily related to the growth of MAU. Because as we mentioned during the conference call, we continue to enhance monetization models in our existing service and products. So that’s why we have put efforts – put lot of efforts to refine our products, especially in membership services. With that said, we invest a lot in R&D product development, and we continue to add more paying modules to our membership services to further driving up the paying ratio. And in the long-term, we focus both on the growth of MAU, as well as the number of paying users. For your second question, the accelerated growth rate in the second-half our – of our fiscal year 2020 is mainly due to seasonality, okay? Normally, Q3, second-half of the year is our heavy quarter compared to the first-half. I hope that answer your question.
  • Zhiyong Li:
    Okay. [Mandarin]
  • Lingling Kong:
    Just to add one point that you – as you know, that we try to diversify our revenue mix. In addition to the whatever services we had, we also have e-Health and family planning services. For the second-half – for the first-half of 2020 due to COVID-19, we’ll see some slowing down in our family planning services as they have trouble to go abroad. Looking at the second-half, we will see an increase revenue from family planning compared to the same period last year.
  • Zhiyong Li:
    [Mandarin] For the benefit of the people online, I will answer the third question for Oppenheimer in English. The question was how [ph] about the purchase price of this lesbian app acquisition? But as Mr. Ma just earlier mentioned that, it is very – this app was still in a very early stage on monetization, though it had won a meaningful awareness in here in China. And that purchase price was based on mutual agreements between the both parties. And, of course, it is of immaterial size and extent. We – just to close with this acquisition, I think today – excuse me, yesterday, and we truly believe that we say synergy going forward are being built up in a long row and the sufficient and profound operation knowledge know-how from Blued, we can get in – get that that app empowered to a much efficient extent for both user growth perspective and for the monetization futures perspective.
  • Unidentified Analyst:
    [Mandarin] And I would translate for myself. Yes, I have a follow-up question on last two. I want to know a little bit more about the market share, let’s say, we are the number one, number two lesbian community – online community in China. Yes, just want to know a little bit more about the competitive landscape for the lesbian market? Thank you.
  • Zhiyong Li:
    This is Ben. I’ll answer the question directly to you that, luckily LESDO was one of the top three lesbian players in China and has been in good dialogue with us for a while and considering the synergy we have built over several months that we conclude this deal for now. Yes.
  • Unidentified Analyst:
    Okay. Thank you, Mr. Ma and Ben. Thank you very much, again.
  • Zhiyong Li:
    Okay. Operator?
  • Operator:
    Thank you so much. And your next question comes from the line of [indiscernible] from Canaccord Genuity. Your line is now open.
  • Unidentified Analyst:
    Hi, thanks for taking my questions. I wanted to ask about COVID-19 impacts to your live streaming and membership businesses during the first-half of the year. Can you talk about whether the pandemic helped or hurt those segments?
  • Lingling Kong:
    Hi, I will translate your question. [Mandarin]
  • Baoli Ma:
    [Mandarin]
  • Lingling Kong:
    During COVID and we can see the time used in the app and the level of engagement are generally higher compared than average. And we see that the level of engagement, the time spent generally increased 30% compared to average. However, there are some services that require human interactions, like family planning and health consulting has – was marginally affected. But as you know that, family planning and e-Health contribute less – together contribute less than 5% of our total revenue. So the impact on us is quite limited. And in addition during COVID-19, we’re inviting health experts online to our app to share the way to fight against the virus and we’ll also make virus donations to help people’s fight against the virus. So [one it is] [ph] being done, demonstrating our commitment to social responsibility.
  • Unidentified Analyst:
    Great. Thank you. And on live streaming, since it is still your largest revenue segment by a lot, can you talk a little more about any initiatives in the first-half of the year that helps to drive user growth in live streaming or monetization, such as any new products?
  • Lingling Kong:
    [Mandarin]
  • Baoli Ma:
    [Mandarin]
  • Lingling Kong:
    Yes. Live streaming is currently contributing largest revenue pie to our total revenue. And we have seen put a lot of efforts to further diversify our revenue mix. And talking about live streaming, we have to say that thanks to our market-leading position. We gain brand recognition and market awareness through the community. And our community is – our users are highly – our realtors are highly engaged within the community. Therefore, our competitive edge in the live streaming sectors are comparatively very high. So we will continue to contribute growth in the future. And looking into the near future, we’ll continue to invest in live streaming content and we will do – we will promote lot of promotional activities to further drive up revenue growth. And when we look at the DAU penetration in live streaming services, the average DAU penetration rate is only around 20%. So we will do – we will promote further online events and activities to drive up the DAU penetration. In addition to that, as we roll out live streaming model in overseas market, those live streaming services are very well received by the market. So we can say that we have huge – so we can say that overseas markets still have huge potential in live streaming services at all. I hope that answer your questions.
  • Unidentified Analyst:
    Yes. Thank you very much.
  • Operator:
    Thank you so much.
  • Zhiyong Li:
    Operator?
  • Operator:
    There were no further questions at this time. I’d like to get back to Mr. Li for closing remarks.
  • Zhiyong Li:
    Okay. Thank you. Thank you, operator, and thank you all for participating on today’s call and for your support. We appreciate your interest and look forward to reporting to you again next quarter on our progress. Operator?
  • Operator:
    And that does conclude the conference for today. Thank you for participating, and we all now disconnect.

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