Smart Share Global reported a 24.7% year-over-year decrease in revenue in its Q3 2023 earnings call, despite a significant expansion in its mobile device charging services and point-of-interest (POI) count. The company's mobile device charging gross merchandise volume (GMV) increased by 18% YoY, with a consistent monthly growth, and its registered user base expanded by 16.4 million to 379 million. However, revenues for the quarter were RMB613.5 million, a decrease primarily attributed to a drop in the number of POIs.
Key takeaways from the earnings call include:
- Smart Share Global's mobile device charging GMV and POI count reached historical highs during the quarter, with nearly 80,000 new POIs added, primarily in restaurants, entertainment, and shopping hubs.
- Mobile device charging orders increased by 9% YoY, and the company achieved a non-GAAP net income of RMB55.2 million for the quarter.
- Despite a decrease in revenues, the company remains committed to its strategic pillars and expects sustained growth. It aims to expand its network coverage and improve operational efficiency while reducing expenses.
- Revenues from the direct model decreased by 36.4% YoY, primarily due to a decrease in the number of POIs. Revenues from the network partner model remained steady.
- Smart Share Global had cash and cash equivalents of RMB3.3 billion as of September 30, 2023.
The company also provided an outlook for the fourth quarter, noting that consumption was slightly below expectations with GMV increasing by 30% YoY in October and 32% in the first three weeks of November. Smart Share Global anticipates a gradual improvement but expects it to take more time to fully normalize. The company is also optimistic about the rebalance of their POI system between the two models, which they predict will benefit margins.
In terms of other revenues, the company experienced significant growth, driven by both advertising and new business initiatives. While they did not disclose specific initiatives, they expressed excitement about their potential contribution to financials and discussed leveraging their distribution capabilities and IoT foundation. Despite the challenges, Smart Share Global remains open to exploring opportunities for growth.
InvestingPro Insights
Smart Share Global's recent Q3 2023 earnings call highlighted challenges in revenue despite growth in key operational metrics. InvestingPro data and tips provide additional context for investors considering the company's financial health and market position.
InvestingPro Data shows that Smart Share Global has a market capitalization of $194.36 million and an impressive gross profit margin of 67.5% as of the last twelve months ending Q2 2023. This high margin is indicative of the company's strong pricing power and cost control in its specialty retail segment. Despite a challenging quarter, the company's gross profit stood at $304.13 million, showcasing the underlying strength of its business model.
An InvestingPro Tip highlights that Smart Share Global holds more cash than debt on its balance sheet, which is a positive sign of financial stability. This aligns with the company's reported cash and cash equivalents of RMB3.3 billion as of September 30, 2023. This liquidity could be crucial for the company as it navigates the current dip in revenue and invests in strategic growth initiatives.
Another relevant InvestingPro Tip is that Smart Share Global is a prominent player in the Specialty Retail industry. Its expansion in mobile device charging services and POI count, as reported in the earnings call, reinforces its competitive position in this niche market.
For investors looking for deeper insights, InvestingPro offers additional tips on Smart Share Global, including predictions on profitability and stock performance trends. Subscribers can access these insights, which could be particularly valuable given the stock's high price volatility, as indicated by an InvestingPro Tip. With the current Cyber Monday sale, InvestingPro subscriptions are available with discounts of up to 55%, providing investors an opportunity to access a wealth of expert analysis and tips, including several more that are not listed here, to help them make informed decisions.
Full transcript - Smart Share Global ADR (EM) Q3 2023:
Operator: Hello, and thank you for standing by for Energy Monster's 2023 Third Quarter Earnings Conference Call. At this time, all participants are in listen-only mode. Today's conference is being recorded. If you have any objections, you may disconnect at this time. I would now like to turn the meeting over to your host for today's conference call, Director of Investor Relations, Hansen Shi.
Hansen Shi: Thank you. Welcome to our 2023 third quarter earnings conference call. Joining me on the call today are Mars Cai, Energy Monster's Chairman and Chief Executive Officer, and Maria Xin, Chief Financial Officer. For today's agenda, management will discuss business updates, operation highlights and financial performance for the third quarter of 2023. Before we continue, I refer you to our safe harbor statement in the earnings press release, which applies to this call as we will make forward-looking statements. Also, this call includes discussion of certain non-GAAP financial measures. Please refer to our earnings release, which contains a reconciliation of non-GAAP measures to the most directly comparable GAAP measures. Finally, please note that unless otherwise stated, all figures mentioned during this call are in RMB. I would now like to turn the call over to our Chairman and Chief Executive Officer, Mars Cai, for the business and operation highlights.
Mars Cai: Thank you, Hansen. Good day, everyone. Welcome to our 2023 third quarter earnings call. We're very pleased to announce that our operation continues to achieve new heights during the third quarter of 2023 with both mobile device charging service GMV and POI count both reaching historical high. Mobile device charging GMV increased by 18% year-over-year as the progression towards normalization of offline foot traffic continues its recovery trend. Performance in third quarter showcased a consistent monthly growth pattern. July marked a 16% year-over-year GMV increase, followed by an 18% increase in August, and a stronger 22% growth in September. The growth in GMV was particularly pronounced in higher-tier cities, with Shanghai, Xi'an, Chengdu and Beijing driving the recovery with impressive year-over-year growth of 65% -- 55%, 32% and 28%, respectively. Growth in terms of POI types was all encompassing as well with every type of POI growing year-over-year. Transportation hub, fueled by the surge in summer travel, achieved a notable 62% year-over-year growth. Other POI types such as office buildings, family centers, banks and government institutions exhibited robust growth with a year-over-year increases of 57%, 65%, 72%, and 75%, respectively. The recovery in our GMV continues to be driven by the diversification of coverage both in terms of city tier as well as POI types, which reiterates the adaptability of our services to diverse environments and general demand for our service across China. In terms of network expansion, we added nearly 80,000 new POIs during the third quarter of 2023 with restaurants, entertainment and shopping hubs locations leading the growth. We were also able to onboard leading KAs in various industries as the benefit of our brand value and network effect of our operation continues to scale. This dynamic expansion reiterates our commitment to providing charging solutions across diverse locations, so that more users in need of our service can more easily access our solutions. We are excited that expansion of our network coverage is unlocking new opportunities to reach and serve a broader user base. Our cumulative registered user base expanded by 16.4 million during the third quarter. As of the end of the quarter, we reached a cumulative user base of 379 million, making a 17% year-over-year increase. Mobile device charging orders increased by 9% year-over-year to over 176.5 million during the quarter as both new and existing users continue to seek Energy Monster for their everyday charging needs. We are also continuously rebalancing our network coverage between our direct and network partner models during the third quarter, as POIs under the network partner model and active network partner count both reached new highs. Not only were we able to effectively the -- scale and -- network coverage of our operation during the third quarter, the profitability of our operation is also making a recovery. Non-GAAP net income reached RMB55.2 million for the third quarter, increasing from RMB17.1 million in the first quarter and RMB30.1 million in the second quarter. The increasing trend is clear and the recovery compared to the same period of last year is significant. Three consecutive quarters of profitability reflects our enduring commitment to operational efficiency despite the weaker-than-expected recovery in offline foot traffic and consumption power. The increased scale coupled with an improvement to our profitability reflects that our commitment to our strategies in operational efficiency and POI expansion is effective and continues to be a driver for growth and improved profitability. Now let me walk you through our key initiatives in coverage and efficiency in greater details. First is our commitment to expanding our network [Technical Difficulty] where our service is available to over 2,000 [Technical Difficulty] The consistent growth in POI count and expansion of regional coverage indicate that there continues to -- untapped opportunity in the mobile device charging service market here in China. Our user acquisition efforts yielded a remarkable 16.4 million new users during the third quarter, representing a 17% year-over-year increase in terms of our cumulative registered users. The large user base is directly translating into record high number of unique users and mobile device charging orders, which totalling to more than 176 million orders for the quarter. The network effect of our operation continues to scale and become increasingly apparent. For users, they are able to see our cabinets throughout their day, cementing the Energy Monster brand as a reliable and expansive provider of mobile device charging service. During the quarter, we continue to roll out IP partnership with leading celebrities and brands for the promotion of tailored power banks, especially the one with [indiscernible] Fantasy World. This continues to be one of the differentiators that Energy Monster excels that -- at in terms of offering a different experience for our users. We are also seeing an increasing number of users directly opening up our mini program to find out service in their nearby locations as we solidify Energy Monster as the go-to brand for mobile device charging service. We are also seeing a number of orders where users borrow power banks from one cabinet and returning it into another cabinet continuously trending up, suggesting that the users are more comfortable with taking the power bank with them to their next location, as there will likely be a place to return the power bank later in the day. The increased POI count will be the main driver of our ability to acquire new users across China, but at the same time, we will innovate on more ways to attract and remain more users to our service. As offline foot traffic in our operation continues its recovery, we are also rebalancing the contribution by our two major models in terms of POI distribution. Our direct model team continued their strong performance in the third quarter. The network partner model under the direct model team continues to bring added layer of synergy between the two models together. This program leverages the coverage and manpower of our direct model to effectively expand our network partner model in larger cities, increasing the efficiency and coverage capabilities of each [BD] (ph). Another benefit of this program is the strong execution capabilities of our direct model team can be extended for the promotion of our network partner model, allowing us to more quickly and effectively reach network partners. On the KA front, we continue to secure contracts with new chains, including supermarkets and large-scale amusement parties -- parks across China, because our direct model team directly work with the KAs for the everyday operation of our cabinets and post-sales support. The support to our KA clients maintains its reputation as the best within the industry, given that most of our peers within the industry only have the network partner model. This is one of the key reasons why we're able to continue attracting top-tier KAs within the industry, and through our service, consistently renew our contracts with them. This quarter, we adjusted our POI structure focusing on KAs and urban KAs to optimize our direct model portfolio. Going forward, our direct model will concentrate the advantage in terms of execution capabilities and ability to acquire KA accounts to focus primarily into high-yielding locations in higher-tier cities and KAs. Our network partner model, which continues to be the driver of our network expansion, will primarily focus on expanding into lower-tier cities and to complement our direct model's coverage in higher-tier cities as well. During the quarter, the network partner model continues to play a pivotal role in the expansion of our POI coverage and now constitute to approximately 65.5% of our POIs. The growth of our network partner model is driven by the combination of new network partners and the support of existing ones. In third quarter, we have over 10,000 active network partners, an increase of 1,100 from the previous quarter and 4,700 from the same period last year. Both our network partner team and our direct model program have contributed to the significant growth. However, the rapid increase in network partner is only one part of the equation as we strive to continue providing our network partners with the know-how and data needed to successfully run their mobile device charging service operation. Looking forward, the combination of continuously acquiring new network partners alongside with unlocking the growth potential of the existing ones will serve as the core drivers of growth under the network partner model. Both our direct and network partner models serve as drivers of our expansion. Having the two models give us increased flexibility in terms of getting into new POI, both across different regions and POI types. In the future, we will balance the two models based on the advantage of each in order to more efficiently expand our coverage. The models will fuel our expansion towards more regions and POI types, which in turn ultimately allow more users to access our product and service. The next one is efficiency. In the third quarter, our cost optimization strategies continue to bear fruit. The primary reason for the substantial reduction in sales and marketing expenses is due to the new contractual arrangement with network partners. However, the expense structure for the direct model is evolving accordingly, with [few] (ph) revenue sharing contracts comprising 85% of total signed contracts in the third quarter of this year, up from 79% in the same period last year. The reduction in fixed expenses has played a crucial role in the transition of our financials back to a positive profit. Especially, we further optimized our logistics and warehousing, reducing the warehousing expense as percentage of our revenue to reach better economics of scale for warehouse and logistic costs. We are also continuing to introduce more ways to improve the quality of our cabinets and power banks by implementing improved quality assurance measures throughout both design and manufacturing processes to reduce repairment costs. These moves are all aligned with our commitment to cost efficiency and operational excellence. We also remain unswerving to being the leader in the market in terms of hardware capabilities and quality. We will be introducing newer versions of our power bank next year that features longer lifespan and increased quality too. Our investments in the next generation of hardware showcases our commitment to staying at the forefront of innovation. This not only enhances our competitive advantage, but also contributes to the overall efficiency and reliability of our service, as well as improving the user experience. Also the efficiency of our network partner team has scaled significantly in the past year. During the year, our network partner count increased by almost 90%, while our network partner team increased by only 11%. The increase in the number of network partner managed by each network partner personnel is unlocked throughout the software support as more and more tasks can be automated. As the trend towards network partner continues, we believe the operating leverage that can be achieved will be increasingly apparent. The shifting balance between the two models and the initiatives we have taken to improve operational efficiency, all contribute to the improvements of our profitability during the quarter. Going forward, we remain committed to our strategy in improving operational efficiency as we continue to optimize our operating expenses and costs. Overall, third quarter was a peak season with mobile device charging service displaying strong growth and uptrend in profitability. Operationally, our POI in terms of direct model and network partner model continue to rebalance based on their respective advantages. The direct model will more focus on high-yield locations, while network partner will complement the coverage. The two models continue to differentiate ourselves from market peers as they all allow for increased flexibility and execution. Our roadmap for the fourth quarter underscores our commitment to expanding our coverage, namely through increasing network partner account and support, strengthening key account acquisition, and enhancing our POI composition. We will also continue to reduce fixed expenses and optimize variable expenses and costs, and drive the increase in efficiency of our teams by introducing more automated tools. These will all help us spearhead the standards of operating efficiency within the market. Looking ahead, in the fourth quarter, the consumption power remains soft, although there continue to be signs of recovery in progress. GMV increased by 30% year-over-year during October and 32% in the first three weeks of November. Despite these challenges, our unwavering commitment to our strategical pillars remains our guiding force. In conclusion, Energy Monster stands at the cusp of sustained growth, with our mobile device charging service continuously reaching new operating milestones and general recovery in profitability in progress. Our strong cash position and robust cash flow serve as the bedrock for driving the continuous growth and value for our stakeholders and to optimistically explore new initiatives that may drive Energy Monster to new heights. Thank you very much. I'll now turn the call over to Maria Xin, our Chief Financial Officer, for the financial highlights.
Maria Xin: Thank you, Mars. Now, let me walk you through the third quarter 2023 financial results in greater details. For the third quarter of 2023, revenues were RMB613.5 million, representing a 24.7% year-over-year decrease. Mobile device charging revenues, which consists of revenue generated from both direct and network partners models, were RMB564.2 million and accounted for 92% of our total revenues for the quarter. Revenues generated from direct model, which comprise of mobile device charging service fee of RMB278.1 million and power bank sales of RMB6.1 million, were RMB284.2 million for the third quarter of 2023, down 36.4% year-on-year. The decrease was primarily due to the decrease in number of POIs operated through the direct model. Revenues generated from network partner model, which comprise of the mobile device charging solution fee of RMB58.8 million and the sales of cabinets and power banks of RMB221.2 million, were RMB280 million for the third quarter of 2023, down 22.7% year-over-year. The decrease was primarily due to the change in contractual arrangement with network partners. Under the new contractual arrangement, mobile device charging revenue generated under the network partner is net of incentive fees paid to network partners. The decrease was partially offset by the increase in cabinet and power bank sales to network partners. Other revenues, which accounted for 8% of our total revenues, were RMB49.3 million for the third quarter of 2023 compared with RMB5.8 million in the same period last year. The increase was primarily attributable to new business initiatives. Cost of revenues was up 71.1% year-on-year to RMB214.8 million for the third quarter of 2023. The increase was primarily due to the increase in sales of cabinets and power banks under the new contractual arrangement with network partners. The increase was partially offset by the decrease in depreciation cost. Gross profits was down 42.2% year-over-year to RMB398.6 million for the third quarter of 2023. Operating expenses for the third quarter of 2023 were RMB364.6 million, down 53.6% year-on-year. Excluding share-based compensation, non-GAAP operating expenses were RMB359.5 million, representing a year-over-year decrease of 53.9%. Research and development expenses for the third quarter of 2023 were RMB23.8 million, down 2% year-over-year. The decrease was primarily due to the decrease in personnel-related expenses. Sales and marketing expenses for the third quarter of 2023 were RMB298.2 million, down 60% year-over-year. The decrease was primarily due to the decrease in incentive fees paid to network partners as a result of the change in contractual arrangement with network partners and the decrease in incentive fees paid to location partners. General and administrative expenses were RMB37.1 million in the third quarter of 2023, up 26.1% year-on-year. The increase was primarily due to the increase in personnel-related expenses and the professional service expenses. Income from operations was RMB34 million, and the operating margin for the third quarter of 2023 was 5.5% compared to a negative 11.9% in the same period of last year. Net income was RMB50 million in the third quarter of 2023 compared to a net loss of RMB95.8 million in the same period last year. Net margin for the third quarter of 2023 was 8.2%, compared to a net margin of negative 11.7% in the same period last year. Non-GAAP net income, which excludes share-based compensation expenses, was RMB55.2 million in the third quarter of 2023, compared to a non-GAAP net loss of RMB88.6 million in the same period last year. As of September 30, 2023, the company had cash and cash equivalents, restricted cash, and short-term investments of RMB3.3 billion. Cash flow generated from operations for the third quarter of 2023 was RMB165.6 million. Capital expenditure for the third quarter were RMB2.8 million. Thank you for listening. We are now ready for your questions. Operator?
Operator: Yes, thank you. The question-and-answer session of this conference call will start in a moment. [Operator Instructions] And the first question comes from Victor Tang with Goldman Sachs.
Victor Tang: Hi, thank you, management, for taking my question. I'm asking this question on behalf of Ron Keung, my analyst. You mentioned during your opening remark that there's a rebalance between the network partner and direct models. Can you -- can management clarify how exactly this is done and what is the right balance to think about in the future? Thanks.
Mars Cai: Thanks for the question. That's correct. We are actively rebalancing the contribution between the two models. But I would like to note that the recalibration has been going for the past few years. As of the third quarter of this year, 65.5% of our POIs are under the network partner model. This is a significant increase from the 47.4% of the same time last year. This rebalance will take from -- form with time, actually. I would like to emphasize that this does not mean that we will only have our network partner model in the future. Our direct model's advantages in terms of rapid execution and ability to acquire KA remains clear. That's why going forward we would like to focus these advantages for the direct model to key regions and POI types, namely, [Technical Difficulty] POIs in higher-tier cities and KAs. This increased precision in terms of direct model will allow to have a greater focus on the larger regions and location partners. I think the balance between the two is still a work in progress as we don't set specific targets for the contribution for either models. However, given the increased focus of our direct model, we would expect the contribution by our network partner model to continue increasing for the near future. Thank you.
Operator: Thank you. And the next question comes from Vicky Wei with Citi.
Vicky Wei: Hi, management. Thanks for taking my question. Can management give more insight on the fourth quarter outlook, and how the changing ways between the two models will impact the company's performance in the future? Thank you.
Maria Xin: Sure. Thanks for your question. We are still observing the fourth quarter, but so far the consumption is a bit below expectations. GMV increased by 30% year-over-year during October and 32% in the first three weeks of November. There are signs of a gradual improvement, but it will take a bit more time for it to fully normalize. As for the profitability part, the general rebalance of POI based on the two models will positively benefit our margins. Under the network partner model with the updated contractual arrangement, we sell the mobile device charging cabinets to our network partners and then generate a long-term mobile device charging solution revenue. Also, gradually with time, the reduction in direct model will also lower our operating expenses. This will both be positive for our long-term margins in the future. Thanks.
Operator: Thank you. And the next question comes from Charlie Chen with China Renaissance.
Charlie Chen: Hi, Mars and Maria. Congratulations on this strong quarter. I just want to get a bit more color on the other revenue, which seems to increased quite a bit this quarter. How much of this is driven by the advertising portion and how much by new business initiatives? And can management share a bit on what initiatives are actively being explored by the company? Thanks a lot.
Mars Cai: Hi, and thanks for the question. First of all, I would like to break down a bit by the segments. Advertising revenue is growing as our registered user base grows, and also, very important, we improved advertising efficiency. So, it continues to scale accordingly to our mobile device charging service. This quarter, new initiatives' contribution has increased a lot as well, and we are excited about that. But given that the new initiatives currently is still in its very early stage, we will disclose these initiatives once it consistently deliver a more meaningful contribution to our financials. I think in terms of new initiatives, our approach has always been to firstly identify large industries where demands and unit economics are proven. Next, we are also seeing to how existing model -- mobile device charging service advantages can synergize with the new operation. For Energy Monster, we have two strong capabilities that serve as foundation to our potential entry into other industries. One is our vast distribution capability developed throughout our direct network partner models. Another of our advantages is our ability to create solutions and our strong IoT foundation. Going forward, we will actively explore opportunities that can leverage our advantages in the two to unlock the addition of the avenues of growth for the company. Thank you very much.
Operator: Thank you. We are now approaching the end of the conference call. I would now like to turn the call over to Energy Monster CFO, Maria Xin, for any closing comments.
Maria Xin: Once again, thank you for joining us today. Please don't hesitate to contact us if you have any further questions. Thank you for your continued support, and we look forward to speaking with you in the coming months.
Operator: Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Good day.
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