MOGU Inc. (NYSE: MOGU) reported Q2 EPS of ($0.42), $0.35 worse than the analyst estimate of ($0.07). Revenue for the quarter came in at $27.7 million versus the consensus estimate of $35.39 million.

Second Quarter Fiscal Year 2020 Highlights

• Gross Merchandise Value (GMV1) for the second quarter of fiscal year 2020 was RMB4,167 million, an increase of 8.1% year-over-year. GMV for the twelve-month period ended September 30, 2019 was RMB17,825 million (US$2,493.8 million2), an increase of 9.7% year-over-year.
• Live Video Broadcast business continued to grow strongly with associated GMV for the second quarter of fiscal year 2020 increasing 115.2% year-over-year to RMB1,629 million, and average APP MAUs who clicked on a LVB in the quarter increasing 76.2% year-over-year. LVB associated GMV contributed 39.1% of total GMV during the quarter. Active buyers of LVB business in the twelve-month period ended September 30, 2019 grew 64.0% year-over-year to 2.9 million.
• Total revenues for the second quarter were RMB197.9 million (US$27.7 million), a decrease of 15.3% year-over-year. Commission revenues grew 3.3% year-over-year while marketing revenues decreased 30.8% year-over-year.
• Active buyers3 in the twelve-month period ended September 30, 2019 reached 28.8 million, a decrease of 12.3% compared to the same period last year.
• Loss from operations was RMB223.6 million (US$31.3 million), compared to loss from operations of RMB191.9 million in the same period of fiscal year 2019.
• Net loss attributable to MOGU Inc.’s ordinary shareholders was RMB326.6 million (US$45.7 million), compared to a net loss attributable to MOGU Inc’s ordinary shareholders of RMB453.7 million in the same period of fiscal year 2019.
• Adjusted EBITDA4 was negative RMB124.6 million (US$17.4 million), compared to negative RMB113.1 million in the same period of fiscal year 2019.
• Adjusted net loss5 was RMB196.9 million (US$27.6 million), compared to adjusted net loss of RMB110.8 million in the same period of fiscal year 2019.
• Basic and diluted loss per ADS were RMB3.0 (US$0.42) and RMB3.0 (US$0.42), respectively, compared with RMB17.73 and RMB17.73, respectively, in the same period of fiscal year 2019. One ADS represents 25 Class A ordinary shares.

Mr. Qi Chen, Chairman and Chief Executive Officer of MOGU, commented, “China’s Internet space has evolved extensively over the years with verticals that once stood apart from each other, such as social media, e-commerce, entertainment, and lifestyle services, now merging with one another. A constant stream of new breeds of business models are being created everyday. This trend has picked up in recent years, something which we are acutely aware of. MOGU was built with a specific mission in mind—to make fashion accessible to everyone. It has been a challenging journey, but like this new breed of business models, we have evolved with the times, overcoming many challenges in the past 9 years while remaining fully committed to this mission. We strategically began building an innovative key opinion leader (“KOL”)-driven social shopping experience with an integrated supply chain to rapidly adapt our business to a changing market and incorporate growing trends. We believe this unique model is more in line with the future direction of the industry and is more suitable than the traditional storefront and online merchandise-based marketplace models. Our KOLs play a central role in here with their exceptional abilities to understand, influence and serve users while at the same time significantly improving overall industry efficiency by better consolidating the existing fashion supply chain in China. Building on this model will allow us to focus on our mission while driving long-term and sustainable growth.”

“Empowering KOLs is the key to building an engaging and comprehensive fashion and lifestyle destination for our users. The strategies we laid out last quarter to expand our KOL-centered platform and LVB business to scale are gaining momentum. First, we expanded our LVB host talent pool and recruited nearly 2,000 new hosts during the quarter to increase the diversity of fashion and lifestyle-related content. Many of these new hosts have a wide range of talents and come from different backgrounds outside of the e-commerce world including personal stylists, fitness and yoga instructors, make-up artists, cooking teachers, and painting and singing instructors among others. We also rolled out designated content channels for these new KOLs within the app. Second, we are investing more in building a catalog of KOL-generated short video content to enhance the exposure of our KOLs to consumers, especially during off-peak hours when they aren’t broadcasting. This is critical for improving user conversion rates and driving consumption on our platform. Third, we strengthened our infrastructure by rapidly expanding the pool of premium suppliers we work with both in terms of depth (total number) and scope (various categories they cover). This will be crucial for cultivating a rich community of new KOLs and LVB hosts and differentiating ourselves within the sector. We also continued to develop new LVB technology and mini programs to diversify hosts’ product selection and enhance the user experience.”

“In an effort to enhance the synergies between our rapidly growing LVB business and marketplace business, we started to integrate the back-end supply chains of both businesses. We believe this will not only help extend the shelf time of LVB merchandise, but also generate enormous synergies and improve the quantity and quality of merchandise on offer through our marketplace.”

“These efforts are yielding solid results with growth of our LVB business accelerating in the triple digits. Our LVB business is also contributing more meaningfully to GMV, accounting for 39.1% of total GMV during the quarter, double that from a year ago and up 7.6% from the previous quarter. LVB hours per day also started to increase, exceeding 3,400 hours in September 2019, up 10% from the previous quarter. We expect these trends will continue in the quarters ahead.”

“We understand the challenges ahead of us, and are making targeted investments now to enhance our LVB e-commerce infrastructure and technology and stay ahead of other players who are trying to enter the space to benefit from the enormous market opportunity. At the same time, we are working to increase monetization of our rapidly growing LVB business as it increasingly contributes a larger proportion of GMV. We are confident that, through the continuous innovation and execution of our differentiated strategies, the next-generation KOL-centered platform we are developing will sustainably drive long-term user expansion and growth.”

Ms. Helen Wu, Chief Financial Officer of MOGU, commented, “Total revenues were RMB197.9 million during the quarter, driven by commission revenues which increased 3.3% year-over-year to RMB101.3 million and partially offset the 30.8% year-over-year decrease in marketing revenues. The increase in commission revenues was mainly driven by robust growth in our LVB business. We expect our LVB business to continue to generate strong growth in the foreseeable future as we execute our strategies. The decrease in marketing service revenue was due to the restructuring our marketplace business with a greater focus on the LVB business. Going forward, we expect commission revenues to continue driving total revenues and our LVB business to increasingly account for a more significant portion of our business.”

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