D-Market Elektronik Hizmetler ve Ticaret A.S.
Q3 2021 Earnings Call Transcript

Published: 23 Nov 2021

[Operator:]

Ladies and gentlemen, thank you for standing by. I am Myrtle, your Chorus Call operator. Welcome and thank you for joining Hepsiburada conference call and live webcast to present and discuss the third quarter 2021 financial results. All participants will be in listen-only mode and the conference is being recorded. The presentation will be followed by a question-and-answer session. . At this time, I would like to turn the conference over to Ms. Helin Celikbilek, Investor Relations Director. Ms. Helin Celikbilek, you may now proceed.

[Helin Celikbilek:]

Thank you, operator. Thank you for joining us today for Hepsiburada's third quarter 2021 earnings call. I'm pleased to be joined on the call today by our CEO, Murat Emirdağ, and our CFO, Korhan Öz. The following discussion including responses to your questions reflect management's views as of today's date only. We do not undertake any obligation to update or revise this information except as required by law. Certain statements made on today's call are forward-looking statements. Actual results may differ materially from these forward-looking statements. The earnings release has been filed with the SEC on a Form 6-K and is currently available on the SEC website and on our Investor Relations website. Please refer to today's earnings release as well as the Risk Factors described in the Safe Harbor slide of today's presentation, today's press release, the 6-K, our prospectus filed with the SEC on July 1, 2021, and other SEC filings for information about factors which could cause our actual results to differ materially from these forward-looking statements. Also, we will reference certain non-IFRS measures during today's call. Please refer to the appendix of our supplemental slide deck as well as today's earnings release for a presentation of the most directly comparable IFRS measures, as well as the relevant IFRS to non-IFRS reconciliations. As a reminder, a replay of this call will be available on the Investor Relations page of Hepsiburada's website. With that, I will now hand it over to our CEO, Murat.

[Murat Emirdağ:]

Thank you, Helin. And welcome, everyone. Before we dive into the quarterly update, some of which we shared in our pre-announcement on November 1, let me start by saying that we, the Hepsiburada team, acknowledge the concerns of the market. Given the headwinds we previously reported on, we had a challenging Q3 and fell behind our expectations in GMV and EBITDA. Today, we will share actions to address those challenges in the market. Also, we will share with you positive news on the progress we have been making. With that, before passing over to Korhan for a more detailed look at our financials, let me provide some context around the third quarter. Since our IPO, there have been strong headwinds on multiple fronts in the Turkish market, which have presented significant challenges. There are three themes that particularly stand out. Firstly, following the full lifting of COVID-19 restrictions on July 1, mobility increased and customer behavior began changing dramatically. The change was so drastic that the quarter-on-quarter market growth slowed to its lowest third quarter growth rate in the past four years in Turkey, according to Turkey Statistic Institute, TÜİK, and Interbank Card Center, BKM. In response to the slowdown, we increased the customer discount to stimulate customer demand during that period, in particular in July and August. Secondly, the competition further intensified in Turkey, as evidenced by the fundraising announcement of our main competitor following our IPO. And thirdly, there was the impact of the overall macroeconomic environment in Turkey. In particular, the exchange rates becoming more volatile in September could have affected customers' consumption decisions in various ways. In light of these macroeconomic headwinds, customer discounts and competitive pricing became more essential. In response to these headwinds, we increased spending on total customer discounts, marketing and advertising. As a result, we continued to generate strong GMV growth despite significant headwinds, but this came at the cost of lowering our gross contribution margin and flat revenue growth. Finally, as you know, we already informed market with a pre-announcement on November 12, prior to this call. We now want to share with you the context regarding the timing of the announcement. Our business has always shown a strong end-loaded seasonality. Historically, the second half of the year is higher than the first half in terms of GMV. And within the second half, the last four months of the year generally make approximately 40% of annual GMV due to key shopping occasions such as back-to-school, Legendary November shopping month and New Year's season. Taking the seasonality into account, we made the pre-announcement after we had full visibility on the business performances in the month of September and October. Despite these major headwinds in the third quarter, we also have posted news regarding the progress we made in multiple fronts, including as follows

[Korhan Öz:]

Thank you, Murat. And welcome, everyone. As Murat elaborated in his section, our value proposition for our customers has been instrumental in driving our growth drivers across the number of active customers, a 26% growth, orders frequency with 21% growth, active merchants with 87% growth and number of SKUs with more than 100% growth. Accordingly, with a 72% yearly order growth, we generated around 50% GMV growth in the third quarter. This performance was achieved against an already strong base of last stage. On a two year compounded basis, our growth momentum continued in the third quarter at 84%. On the next slide, I would like to discuss how certain sectors impacted our financial performance. There are three factors that we need to discuss in depth to better understand the dynamics affecting our revenue and gross contribution margin in the third quarter. Let me start by commenting on our commission rates. Our commission rates that we charge to our merchants on the marketplace remains at around the same level in the third quarter compared to the same period last year. Our average commission rates that we are able to charge to our merchants is in the high-single digits. Another factor is the 1P/3P mix. The 13 percentage point year-on-year GMV share shift from retail to marketplace in the third quarter resulted in lower revenue. And yet, this shift was in line with the continued expansion of our merchant base and selection. Another key factor is, as already discussed by Murat, the third quarter was impacted by major headwinds. Our response to this new environment was to increase total customer discounts significantly, in particularly July and August. Starting from September onwards, we did gradually lower such customer discounts. And in October, we continued on generating efficiencies on our total spending with some encouraging results. However, Q4 is not the best quarter to realize the full impact on efficiencies due to existence of peak occasions, such as the Legendary November shopping month, as well as the New Year season. Overall, these were the most instrumental factors to our performance of nearly flat revenues at around TRY 1.7 billion and 4.3% gross contribution margin in the third quarter. It is worth mentioning that our gross contribution margin is not a direct reflection of the commission rate, but it reflects our marketplace commission net of customer discounts. On the next slide, I would like to discuss revenue performance, further along with gross contribution performance. Before further discussing gross contribution, I would like to give some color on our revenue breakdown compared to the same quarter of last year. Revenue generated from retail operations remained flat, while marketplace revenues declined 80%, mainly due to higher customer discounts as I have touched upon. Meanwhile, our delivery service revenue increased by 83%, driven by the rise in the number of orders and higher delivery service revenue from services provided to third parties. In the first nine months, total revenues grew by around 15% compared to the first nine months of 2020. Now with the gross contribution level, our gross contribution was TRY 280 million in the third quarter. This is reflected as a 4.5 percentage point decline in gross contribution margin compared to the third quarter of last year. In the first nine months, gross contribution grew by around 11% compared to the first nine months of 2020, with a 7.1% gross contribution margin. Now let's have a look at our operating expenses in the next slide. Our net operating expenses as a percentage of GMV reached 14.5% in the third quarter, up from 8.6% a year ago. Around 5.9. percentage point rise was mainly due to 3.9 percentage point rise in advertising expenses as we continued to invest in our growth drivers. These advertising expenses unfortunately became more costly under intensified competitive environment in the third quarter. 1.3 percentage points rise in our G&A expense is due to rise in the number of full time and outsource employees, along with the impact of annual salary raise. The impact of share-based payment expenses booked in Q3 2021 was 0.8 percentage points within the total increase. 0.7 percentage points rise in shipping and packing expenses, driven by the 72% increase in number of orders and around 22% rise in unit prices applied by our delivery partners. Let's move to EBITDA margin bridge on the next slide. As a function of aforementioned drivers, EBITDA in the third quarter was negative TRY 659.4 million compared to positive TRY 8.9 million in Q3 2020. This corresponds to negative 10.2% EBITDA as a percentage of GMV in Q3 2021 and negative 5.7% EBITDA as a percent of GMV for the nine months cumulative as of Q3 2021. The increase was driven by 4.5 percentage points decrease in gross contribution margin due to customer discounts, 3.9 percentage point rise in advertising expenses, 1.2 percentage point rise in payroll and outsource staff expenses and 0.8 percentage point rise in other OpEx items excluding the cost of inventory sold and depreciation and amortization. These results indicate that cost of growth was higher, primarily driven by the increase in customer discounts, advertising spend and unit cost of marketing. Finally, I would like to say a few words on our cash flow dynamics. Net cash used in operating activities increased from negative TRY 47.8 million in Q3 2020 to negative TRY 582.4 million in Q3 2021, which is mainly driven by the increase in net loss for the period. Free cash flow was negative TRY 639 million, mainly driven by the decreasing cash flow from operating activities. And this was mainly due to TRY 698.8 million to increase in our net loss for the period. We continued to operate with negative net working capital, which reached TRY 2.1 billion as of Q3 2021, increasing by TRY 23.4 million in Q2 2021. CapEx was TRY 57 million in the third quarter of 2021. Our investments are mainly for the product development across app, websites and mobile platforms, given our growing operations and pure purchase of property and equipment. Before I end my presentation, I would like to highlight that we feel comfortable with the liquidity we currently have. And therefore, we have no plans to go to the capital markets to raise any funds in the next 18 months. With this, I end our presentation. Thanks for listening. Operator, please open the floor for questions.

[Operator:]

. The first question comes from the line of Tiron, Cesar with Bank of America.

[Cesar Tiron:]

I have four questions, if that's okay. The first one would really be on the competition. And probably if you can explain a little bit more, how does it impact the business, being specific both about online and offline players? And given that trend to capital raise was known since 2Q 2021, did you maybe react a little bit with a lag to this incremental competition and that's why we're seeing this incremental spend in Q3. So, that was the first question. Second question. What was your 3P take rate in 3Q and how much was it down sequentially? Third question. You seem to have stimulated GMV growth through a much larger-than-expected advertising spend in the quarter. What do you think happens when you reduce advertising spend? Or are you planning on keeping advertising to GMV at high-single digit mark going forward? And then, on the fourth question, related to your comment on liquidity and no need to raise capital in the next 18 months, is that only valid for the next 18 months? So, should I consider that the cash burn of the company could be similar to Q3 going forward for the next couple of quarters?

[Murat Emirdağ:]

In terms of the competition and actually how we reacted to it, I guess it is fair to say, when actually Alibaba raised their fundraising after our IPO, that was influenced by competitive landscape in the market and also . There's also market headwinds because of this marked slowdown in the growth rate and other macro dynamics as well. So, all these combined, we needed to stimulate the customer demand to address the challenges, which means actually we heavily used customer discounts. Then we also increased the amount of advertising to ensure we also get a fair share of voice and more access to our customers. And also, finally, the unit cost of marketing also got impacted because of this intensified competitive landscape. It also actually increased the total mix in terms of cost structure. So, in other words, we heavily used customer discounts to stimulate the demand in the market. We increased the amount of marketing/advertising we use, but also the unit cost of marketing/advertising also went up. This is the combination of, actually, the structure you referred to in terms of the competitive landscape and how we reacted to it and why it was increasing the cost of marketing. Now, maybe let's shift to the second question. I guess, Korhan, you can take this one.

[Korhan Öz:]

Our take rates are the commissions that we are able to charge to our merchants. So, between Q2 and Q3, there is no significant change in our commissions that we charge to our merchants. But if your question refers to gross contribution margin, it is down by 4.3%. And as I explained, this is mainly driven by the discounts that are given to our customers during the intensive competition period. For the high advertising spend, I can say, during September, as we mentioned before, we reduced our CRM spendings that are given to our customers, and we continued this reduction during October and we see some encouraging results during October. However, Q4 is not the right period to make this assessment because it's the heavily discount period. So, we will be continuing this reduction, starting from next year onwards. And we believe we will see some encouraging results going forward. On the liquidity for the next 18 months, yes, in our initial plans, we see that our liquidity is sufficient enough and we don't need any liquidity for the next 18 months. And we have a plan for the next 24 months. And by the end of this year, we might need to revise those plans because of the macroeconomic environment in Turkey. However, it is not so easy to make us plan above 24 months for the time being. But for the next 24 months, we feel comfortable in terms of the liquidity.

[Murat Emirdağ:]

I guess just to make sure we are not missing out any questions and answers, you also referred to what will happen if you decrease the if I'm not wrong.

[Cesar Tiron:]

More on the stickiness of consumers, et cetera.

[Murat Emirdağ:]

This is a very good question. Also, like Korhan said, we have already begun tasting some efficient tools and tactics, with increasing muscle of our data science and marketing analysis. But also, let me remind you, in our key differentiators and strongholds, we are not just relying on marketing, as you know. All the four components of our growth drivers are growing – you saw the numbers – customers, frequency, merchants and selection. It is a very healthy dynamic in terms of the growth. And it's been happening. So, basically, when I refer to our other areas that are supporting our growth, I want to emphasize the fact that we are a household brand name, 99% total awareness, we are the only one with a strong hybrid model, 1P and 3P. We actually operate this on – I don't want to replicate – but the customer and merchant differentiated experiences and we can go in more depth in other questions. As you know, the frictionless return is unique to us, minimal services for customers, and many more unique services for merchants we offer in that package. And then, we are, as you saw, leading in terms of AMPS , which is a great asset for us where we differentiated our experience. And, of course, our nationwide robust logistics coupled with our assets like Pay, grocery on demand, HepsiExpress, HepsiJet and advertising and so on, we feel we have many levers to drive the growth across the platform, but not just marketing. And also, we are definitely going to introduce more efficiency as we go forward.

[Operator:]

The next question comes from the line of Adisa, Miriam with Morgan Stanley.

[Miriam Adisa:]

Firstly, just another question on competition. So, I think you mentioned that you've lowered that discounting in September and October. Is that because that the market is becoming slightly less competitive? Or is it more you're just focusing more on profitability and getting better efficiency? If you could just comment on what you're seeing in the last couple of weeks, that would be great. And then also, on competition as well, are you seeing that it's mainly just competition around marketing spend and then also discounting, but are there any other gaps that you're seeing that's emerged in terms of your proposition versus peers, aside from just the discounting and high marketing spend? And then finally, if you could just comment on the customer behavior that you're seeing at the moment in terms of order frequency, and particularly the cohorts that you've acquired over COVID? How are those cohorts comparing to your prior cohorts?

[Murat Emirdağ:]

Maybe I can start from maybe the last question first, which is referring to the customer behavior in terms of project frequency, if I'm not mistaken. Basically, in terms of the drivers of our customer dynamics, you can see both the customer numbers, active customer numbers and the order frequency increase. And this is continuing in a healthy way. And also, you can see the GMV per customer also rising. That is actually the way we see in terms of the overall dynamics here because the GMV per customer also increased by 33% as we saw in the numbers year-over-year. And also, going back to the customer behavior, in this dynamic right now, actually, right now – I want to make sure I get all the questions you asked. The other question you actually asked was lowering discounts. Are we getting better efficiency? I also want to address it. In terms of the customer behavior, in July and August, actually, we saw a very drastic slowdown, which we've already mentioned back in the other earnings call. As you can see from the public data from the Interbank Card Center and TÜİK, Turkish Statistics Institute, there was a drastic drop in this Q3 this year, Q-on-Q. So, basically, moving on with the seasonality, we expect that the customer behaviors will get better normalized. However, given the macroeconomic headwinds, also we want to be cautious about it. In the first period, so far, at least up to this point, we can see we've been actually also unlocking a lot of efficiencies in our marketing practice, growth practice and so on across the board, which is actually very encouraging. However, we want to be also remain very cautious and realistic. Given these major macroeconomic headwinds, we need to closely monitor the customer behavior moving forward. And as Korhan said, Q4 is kind of a very extraordinary quarter, with multiple shopping occasions and long period of campaigns, but also coupled with these macroeconomic headwinds, it's going to be a very interesting time for us to see. So far, we are monitoring very closely. And the second part you asked me about, actually, are we seeing any other area where you see any gap between us and competition. I guess, the good news is we are seeing that we are actually leading the NPS scores. And we are making significant differences in many areas, like, for instance, our experiences like HepsiJet, like the next day delivery, our frictionless return. As you know, it's unique. We can pick up your return at your door at your preferred schedule at no additional fee across the country. No one else can do it. For HepsiJet XL where we began actually now offering the two-men handling cargo service. And as you saw, we are seeing very strong numbers, like 97-plus-percent customer satisfaction scores. In other words, actually, we are making significant progress in areas where we are differentiating from customer. These are the areas we see actually gap between us and others, where we are – in our favor. And also, in terms of the HepsiPay, you saw the numbers. We are making a strong progress along with other assets like ads and so on. So, our goal is to make sure we remain differentiated and get more efficient and smart moving forward. As you can see, we are already taking the actions to make sure we run and manage our marketing spend, customer discounts and cash flow, more efficiency. So, all this combined, we believe we are going to actually increase the gap in our favor when you look at all these parameters I described.

[Miriam Adisa:]

Just to clarify on the competition point, is it that you're not seeing competition let up in the last couple of weeks or you are to lower the discounts?

[Murat Emirdağ:]

The competition is still intense. We should be definitely clear about this. The intensified competitive landscape remains, as we speak, in Q4 as well. And as you can imagine, this is the quarter where the seasonality is high. We described how major role this quarter plays in the total year. And therefore, from offline/online, it is fair to expect increased competition this quarter. But despite that, we are both delivering and trying to get more efficient. And also, try to differentiate with our key differentiators. So, basically, we are trying to not just differentiate, also get more efficient and increase the gap between us and competition in our favor. All these things happening at the same time, and the competition remains intensified.

[Operator:]

The next question comes from the line of Ünal Cem with Goldman Sachs.

[Cem Ünal:]

I have a couple of questions. The first one is related to the fourth quarter and how is the operating environment in fourth quarter, given that the guidance indicates 18% year-on-year growth in the fourth quarter? And also, what is your initial thoughts on the growth and profitability as well as competitive environment into 2022? more close to third quarter in the next year or you will reduce CRM expenses largely in the coming year? And my second question is also related to the first one. Do you see any slowdown due to volatile purchaser environment and how it's been affecting the merchants and their pricing capability on the product they sell? Obviously, volatile Turkish Lira can affect this negatively which might result in slowdown due to lack of availability. And finally, my third question. My third question is related to the market share of Hepsiburada. So, even from the – as ecommerce data system in Turkey year-on-year growth numbers in first half 2021 for the e-commerce market in Turkey on a year-on-year basis where the market grew by 75% year-on-year in first half, why has Hepsiburada GMV growth was at 60% year-on-year in the same period. We know that this is not an addressable market for Hepsiburada, which includes many other parts like sports betting and lottery gaming cross-border. But do you have any insight in your market share either year-to-date or in the first half at least? What was the growth of the addressable market in the first half 2021 on a year-on-year basis at least?

[Murat Emirdağ:]

Let me start maybe from the last question and go the other way around. In terms of market share, we share your concern in terms of lack of resources that everyone can actually leverage and use because we are the only public company in Turkish market. No one has disclosed publicly their numbers. And it's also hard to get real-time access to market competition and competitive landscape in that sense. So, we are kind of also experiencing the same challenge you described. However, we are also experiencing the same challenge you described. However, we try to refer to public sources to kind of get some and extract some insight. Maybe what we can share with you is to refer into the latest trends, is again the BKM, like the Interbank Card Center public data, which you can also access. What we actually also shared in the deck, when you look at the – at least similar addressable sectors reported by BKM in terms of online card transaction volume. And if you look at those numbers from Q3 over Q2 perspective, it looks like the most relevant sectors in BKM grew only 7% Q-on-Q. And if you look at our GMV – again, this is not exactly apples to apples, but trying to just find insight, as you said. If you look at our GMV Q-on-Q, you will see almost kind of a 10% plus – 10%, let's say, growth, which means, in this case, looking at 7% versus our 10%, it might give us some signals regarding the Q3 trend. However, again, I'm emphasizing this. It is not a direct market share measurement, but it's a way of actually trying to understand the pulse in the market. In terms of the other question, how the slowdown – or volatility and the slowdown needs to be correlated. This is actually a very tough question because hard to understand the dynamic in the Turkish market because it could be affecting the customers behaving two different ways. One could be that people actually see this time and shopping season as an opportunity and affordable distribution and opportunity for them, and they can also see ecommerce as a transparent platform for price comparison, selection and convenience. So, they can actually increase their online behavior. This could be option one. Option two could be, seeing this volatility, they can also reduce their overall consumption. So, again, these are the two extremes of the various potential trends. And we are closely monitoring what is going to be the case for Q4. It is too early. I am also now going to your first question. It is too early to mention. But if you look at our current trading as of this month, at least we can maybe share some high level insight with you guys to make sure you understand. So basically, yes, there is a shopping high in this season, but there's also a lot of headwinds, as we discussed, in the market. When we see, at least so far, in the current dynamics, we can say what we tried to achieve in November in terms of our execution seems to resonate fairly well with our customers. What we are doing is also publicly visible. We will focus on affordability solutions. As you know, we did some sort of buy now, pay later solution with leading banks in Turkey, so people can purchase now and pay in January. And also, we emphasized our customer experience and convenience, with unique services like frictionless return and also emphasized others like we discussed. And also, we tried to differentiate in our approach to social commerce. We introduced this wider shopping list that actually regular people also can become authentic recruiters. So, this kind of dynamic seems to resonate well based on the early high level observations we have. Even in the 11/11, we recorded all-time high daily orders, maybe over half a million orders to share for you guys. This is the trends we see in terms of the first part of November, but we're yet to see the big time in the month, which is the Legendary Friday part of the month. So, it's going to be interesting time for us together to closely monitor, but we are seeing our execution and seems to resonate with our customers. This is the answer to your first question. Now, going to the GMV and profitability in 2022, I refer to Korhan.

[Korhan Öz:]

As I mentioned, we had a plan for 2020. However, this is the most intense period for us and November/December is the main shopping season. So, we would like to see the closure of November and December to understand if we need to make small adjustments in our plan and we will come back to you with our guidance, with our Q4 announcements. So, you can expect the guidance in the next year first quarter or end of this quarter. I would like to add one thing on the profitability. Yes, we are taking certain precautions to improve our gross contribution margin. We have done certain tests during October. But November and December is not the time, but we believe going forward, starting from Q1 onwards, we will be able to improve our gross contribution margin, which will help for our profitability. But for the guidance, for the whole 2020, we will come back to you with Q4 announcements.

[Operator:]

The next question comes from the line of Kılıçkıran, Hanzade with J.P. Morgan.

[Hanzade Kılıçkıran:]

I have some follow-up questions and also new questions. The first one is about your take rates. You presented a chart that shows stable take rates on a weighted average perspective. So, can you please also help us to understand the change in GMV per category because I'm trying to understand whether you are also cutting the take rate per category or this is stable mainly because of a shift in the GMV? And the second one is about your inventory levels. You have very low 1P retail margin in the third quarter. But there is not a substantial Turkish lira depreciation. Do you have any inventory that you may benefit on the margin side in the fourth quarter? And the third question is about the CapEx cycle. We don't see much increasing the CapEx so far. So how should we think about it, particularly in 2022? And final is about your actions to improve the gross contribution. Can you please let us know about this plan to action? So how are you planning to improve the gross contribution next year? And maybe the final question is I really wonder the impact of the growth rate on the order frequency because they absorb some sort of ecommerce in the order by the increasing grocery spending or you are also seeing customer buying more on other categories as well?

[Korhan Öz:]

Let me start with the first one about the take rate. Yes, compared to last year, same period, our take rate, means our commission rate that we are charging to our merchants, does not change significantly. That has been an investment period during Q1, Q2, but those are improved and we are back to our original commission level. On the shift in the GMV, I can say our share of marketplace is 70% and 1P is 30%. In terms of electronic sales, last year, it was 65% electronics and 35% non-electronics. And this year's Q3 is 62% electronics and 38% in non-electronics. However, there has been some shift from 1P to 3P between last year and this year, around 13 percentage points, which affected our results for the shift in those categories. On the inventory levels, as a starting point, I can say, yes, we have enough inventories to benefit from the price increases. We started onboarding many inventories from September onwards. That is one of the reasons that our negative net working capital could have been higher, but only improved around TRY 30 million, TRY 40 million for the Q3 closing. That is the reason that the purchase many inventories Q4. However, at the same time, we somehow paid with shorter payment terms, or even we made some advanced payments to secure those products to make them available for Q4. But now, we will be enjoying availability of those products. In terms of CapEx, yes, it hasn't increased significantly in 2021 because we have seen some operational efficiencies and we spent less on the property, plant and equipment. However, going forward, especially for the next year, we are making a plan between TRY 350 million to TRY 400 million spending on the CapEx side. With this foreign exchange increases, we need to make a detailed plan for those purchases. However, the initial plan is something around TRY 350 million to TRY 400 million. On the actions about the gross contribution margin improvement. Yes, we are not happy with the gross contribution margin and we believe we definitely need to increase the margin. During Q3, we had to increase the customer discounts due to the market dynamics, as we explained. There was an intensified competition in the markets and the markets growth was slowed down. So, we had to make those customer discounts. We realize that those are not sustainable. And we made the decision to sharpen our focus on our gross contribution margin, key differentiators and drivers of sustainable GMV growth. By optimizing our customer discounts, marketing spend and cash flow more efficiently, we believe we will be able to improve our margins going forwards. Murat, would you like to take over this order frequency?

[Murat Emirdağ:]

Before I go there actually, Hanzade, I want to address initially – add on to Korhan's answers for two questions specifically and then answer to your last question. There's one actually with inventory levels. I want to add on the fact that we actually were very aware of the global supply chain challenges as well. That's why we wanted this time be well prepared. And as you know, we had the muscle from last year during the COVID where we also successfully were able to plan and manage our inventory in 1P. So, basically, using our 1P as the strong muscle during this period of time, despite the global supply chain challenges and also diverging and benefiting from our long lasting strong supply relationships, we were able to actually get well prepared with our inventory and 1P. So, this was just to make sure I add that color as well. Another question I want to add on, which is the gross contribution margin piece. Korhan successfully addressed the cost part and efficiency part of it. I also want to add the other side of the story. As you know, as you move forward, 3P is getting stronger. This is exactly what you observed, right? We have a stronger 3P now, which also kind of distorts the comparison. But, actually, moving forward, this 3P strength will remain as is. It's going to be always a strong part of our platform. And as this happens, we are also expecting to continue to see more longtail products, adding more longtail merchants coming to our platform, which will inherently, by its nature, also enhance the overall mix and margin of the platform. Other aspect I want also to emphasize is how our value proposition with customers and merchants will also help us improve our profitability moving forward. Just for the sake of time, briefly mentioned this, as you remember, our HepsiJet now crossed 50%. Right now, 53% of marketplace parcels are delivered by HepsiJet in Q3. It's gradually growing, as you know. This means actually – now with our last mile delivery service, they are making a difference for our merchants. It helps in logistic, which is actually a valid position to scale moving forward. With HepsiLojistik, which is actually well positioned to scale moving forward, our distribution service, as you remember, is also going to help our merchants save time and money and also increase the customer experience. And also advertising. We briefly mentioned some numbers. With the recent announcement I am sure you saw with Google and Facebook, we are making innovative ad tech tools, helping our merchants. And also, with training and potentially with also other merchant financing tools, with stuff like that, we are trying to make sure we become the most preferred platform for our merchants. This is our aim. And also, the second part of the story, which is our customers, we also try to be their ultimate choice, right? That's why we are also seeing a lot of actually room for that improvement as well. With our strong brand, with our unique services, like which we discussed, like frictionless return, next day delivery, and like the XL deliveries and service and so on, with our ecosystem play, which I will also step on to shortly, all this coming together, we believe that our margin and profitability will improve over time. So these are actually going to be a function of multiple improvements. Now I'm going to address your HepsiExpress question. HepsiExpress for us is very strategic because, to your question, it improves and helps us improve both frequency and also customer growth because we now realize HepsiExpress is a great tool to bring on new customers with a different profile and demographics and also pretty good frequency because of the nature of the product. And as you know, it also offers instant and slotted and now we have Migros, as I mentioned briefly in the previous section of the call. Now we have all many of the national players like Carrefour, Şok, Migros now and even other regional players. Now we have almost more than 50 brands. So, the selection is getting larger and we aim to offer the widest selection with our service. And with multiple options like instant and slotted. And also, finally, we are improving our own experience, technological experience wise development on our app. All this together, I also want to give you maybe one kind of indication how we are seeing this business. We are very overly focused on the customer experience, the selection as well as sustainability of the model. That's why you will see us moving forward onwards because this is still the early phase this year to invest in that business, but moving forward, you will see us more focusing on sustainability of the model as well and also we are very internally focused on actually perfect order success ratio. So, this is actually a number, a metric we carefully watch and monitor, which means for us, it is the order where there is no delay, no return, and no cancellation because of availability. We take it very seriously because we know ultimate customer experience. And right now, we are seeing, just to give you an idea, around like 60% perfect order ratio, which is very strong. So, we are going to hopefully focus on these moving forward even more and gradually increase the strong number – already strong number ahead.

[Hanzade Kılıçkıran:]

Regarding the Migros onboarding, is it exclusive to Hepsiburada, but they are also presenting themselves in other platforms?

[Murat Emirdağ:]

The nature of the partnership doesn't actually force any exclusivity on either side. Because as you know, our value proposition is actually slightly unique. We believe we're going to grow with our retail partners together. It is our model. It's much more inclusive than other models. We are not running Dutch stores. We work with our retailers. And we kind of see this as an incremental growth opportunity with our partners, retail partners. Therefore, with Migros, in this example, there is no exclusivity involved. But we believe, because of our kind of experience we can offer on our platform and because we are hopefully going to deliver strong mutual incremental growth for both sides, this is going to be kind of a sustainable long-term partnership with both sides. Because this is also an area we are working with our retailer partners, not just them, but others as well. We also work with our partners, how we can improve and enhance our experience and sustainability of the model together. Maybe this much I can share at this point and I will stop here.

[Operator:]

. Ladies and gentlemen, there are no further questions at this time. I will now turn the conference over to CEO, Mr. Murat Emirdağ, for any closing comments. Thank you.

[Murat Emirdağ:]

Thanks so much, everyone. Before we end the call, I want to reiterate that we acknowledge your concerns and take them very seriously. And we remain confident in our market opportunity and long-term value proposition because we know the opportunity and the fundamentals of the business remain strong. And actually, following our IPO, while competition and near-term market conditions have become more challenging, two things have not changed. The significant long-term market opportunity in the digitalization of the Turkish market. And the other one actually is our firm belief in our business model. So we are committed to deliver on our drivers of sustainable growth, key differentiators, strategic assets that we discussed and valuable services for customers and merchants with a disciplined cash management, creating long term value for our company and shareholders. We look forward to speaking with you again in the next quarter's call. Thank you, all.

[Operator:]

Ladies and gentlemen, the conference has now concluded and you may disconnect your telephone Thank you for calling. Have a pleasant evening.