Weimob Inc

HKEX:2013

Earnings Call Analysis

Earnings Call Transcript 2022-Q2

[Operator]

Good evening, ladies and gentleman. Welcome to Weimob Inc. 2022 Interim Results Conference Call. A copy of the interim results announcement can be found and downloaded from the company's Investor Relations website. [Operator Instructions] This call will be conducted in Mandarin and English simultaneous interpretation will be provided. Participants may flip the PPT on the streaming platform. Please note that this conference call may cover non-IFRS metrics and refer to the company's results announcement.

Joining us today on the call are Chairman of the Board and CEO, Mr. Sun Taoyong; CFO, Mr. Cao Yi, Chief Operational Officer, Mr. Yin Shiming and Chief Technology Officer, Mr. Huang Junwei.

May I now turn the call over to Mr. Sun.

[Taoyong Sun, executive]

Honorable investors and friends, good evening. Thank you very much for joining Weimob's interim results presentation. Now, I'm going to introduce to you our 2022 first half results. In first half 2022…well, the year was full of challenge, as we all know there was still COVID-19 outbreak especially in Shanghai, and Shanghai was closed or locked down for 2 plus months. So, SMEs business development, we're particularly affected. So in the first half of the year to Weimob business developments remains resilient. Our total revenue was CNY 900 million. So there was a slight decline.

Now, I would like to emphasize that this year, our revenue benchmark was slightly changed in the past within revenue. We talked about Digital Media and corporate, so far Digital Media. The overall revenue and gross profit is not our main direction. So in 2022, for the Digital Media business, well we stopped developing it. And so, that's why the overall benchmark was changed. Then in the first half of this year for our income it was up 5.7%. This is revenue from subscriptions solution, number of paying merchants was up 1.7% average revenue per user up 4%. So under the pandemic this year, in the first half of the year we are still able to maintain year-on-year growth in revenue. We believe that this is really not easy to achieve. So I think there was really some pressure on our results.

And then regarding precision marketing, or precise marketing, because there is a decline in the overall environment then for the precise marketing gross revenue down 20.4% And then for a number of paying merchants, there is a slight decline 26,700 odd so that is about Merchant Solutions. So because there is change in macro environment and advertisers budget, there is a decline by 20% of revenue per customer so as a result there is a decline. In the first half of the year, there are some quite satisfactory highlights. So our moving up-market is being implemented in a stable manner.

So when it comes to Smart Marketing, revenue was up around 30%. So if we exclude heading's impact, because of incorporating into the balance sheet, the organic increase is 60%. And then last year, it's 33%. Then for a number of Smart Retail merchants, it's up 48.6% in number. In the first half 2022, R&D expenses accounted for a rising share of the total, almost 50% in the first half 2020. And then R&D investment is rising constantly.

In 2022, we introduced 3 major strategies. So they are the moving up-market, ecosystem buildup and globalization strategies. So let me comment on the execution of these strategies. First, moving up-market. At present, if you look at this strategy, it is very effective. Looking at our revenue of the total of this strategy. For Smart Retail, year-on-year growth under the pandemic, it is still satisfactory. And this year, because many enterprises were suspended, and so there was a suspension of settlement of contract, but then this year, for old customers, renewal of payment, well, they accounted for a rise in revenue.

So when it comes to moving up-market strategy, well, it is very resilient in terms of revenue growth. Now, we are at 44% in terms of top 100 fashion retail, 45% of top 100 commercial real estate; 35% of top 100 convenience store chains, 43% of top 100 restaurants. So for our coverage of top customers, Weimob has very big percentage, and the trend is rising.

In 2021 or 2022 utilization apart from moving up-markets, well internally, we made some adjustments. We called that industrialization strategy. So originally we have the SaaS segment. Now, it is divided into 3 subsectors, GBU, IBU and CBU. For IBU, it is responsible for the whole industrialization. For GBU, the smaller SMB customer groups and CBU responsible for channels. For IBUs now we have 6 main industries.

So we believe that closing and home, apparel and footwear, digital, these are the highlighted sectors. Starting from last year to now, there are 2 main new industries, which have achieved breakthrough achievements or progress. And that is construction materials, FMCG, food and home furnishing. So actually, we have signed contracts with all the top customers, for example, [indiscernible] and so on. So these are very renowned home furnishing brands. They are already our customers. And then when we signed contracts with these top customers, more and more brands are approaching us.

And then for home furnishing material industry, the budget is much bigger than our expectation. So originally, we had overlook the importance of this industry. However, when it comes to home furnishing material industry, no matter whether we look at the investment into digitalization and marketing and market and advertising and also private domain, it is big. So we believe that this industry will be -- has become one of our focal industries. For food and FMCG, we have also signed contract with some top customers like [indiscernible] and so on. These are some brands that we have signed, and they have become our customers. So with our TSO strategy -- so operation and also services, where we are providing complete solutions to them.

So this year -- these are the 2 breakthrough industries, and that is home furnishing material, food and FMCG. So on the original clothing and home outdoor sports and also maternal and infant, food, FMCG, digital beauty and personal care. These are the original sectors -- so now Weimob is already the first choice working partner. For example, [indiscernible] and so on, these groups are in the area of fashion and footwear and also sports, for example, [indiscernible] and so on. Then we have fashion companies, [Mulsanne] and so on.

So basically we have all these top customers who are using Weimob services [indiscernible] and so on, they are using Weimob services [indiscernible] they are our customers. So fashion, apparel and footwear, we maintained very strong strength. And this strength and competitive advantage is widening. So when it comes to home furnishing, materials, food and FMCG, BOT, we are implementing this industrialization strategy.

Now let's take a look at some figures. About moving up-markets, if you talk about our Smart Retail system, well, there is growth in the first half 2022, comparing with 2021 number of cloud stores was up 107%. Number of cloud shopping guys, up 49%. Closed store performance up 12%, [departure] performance, up 35%; cloud warehouse performance up 90%.

In the first half of this year, GMV was more than CNY 100 million, up 20%, CNY 50 million to CNY 100 million, up 33%, CNY 30 million to CNY 50 million, up 125%, CNY 10 million to CNY 30 million, up 50%. So from all these figures in the first half of this year, even though there was impact from the Pandemic our merchants operating data are still showing good signs. Then about video we are maintaining our leading competitive advantage. So now we have obtained 4 types of service provider qualifications, a video number, operation, plus investment, plus training, plus supply. So on 618 we are #1 in terms of precise -- in terms of video number, e-commerce service provider, new anchor record ranking, #1, and #2 in relation to 618 video number, e-commerce training guidance, service provider record ranking. There is an increase by 177x in video number merchant year-on-year growth in order amount and 35x number of orders from video number merchants year-on-year growth. So you can see that growth is fast.

In March this year, there was already a public test on our WOS and up till now, 80% plus of customers are already using our WOS. Now WOS is a foundation layer brand and actually, the original system can still be used. But overall speaking, we are promoting WOS. Right now, 80-plus percent of customers are using WOS. At the end of this month, we believe that we will reach 95% or above. And if we compare WOS performance and also user experience, as WOS applet page opening speed is faster than new cloud by 38% plus. WOS traffic bearing capacity is improved compared with the new cloud by 2x to 8x. And WOS merchant report usage is higher than that of the new cloud, so an increase by 130%. So we have laid down a past platform for WOS. So for the front end of users and also merchants. They have a standardized brand-new design.

So if you look at the visual design, the interface and also the back office, there is brand new design. And right now, no matter whether you look at the foundation layer technology and also on other dimensions, we are leading other service providers by a large margin. Because of the launch of WOS, our ecological layout continues to accelerate. In the first half this year there are 60 new ecological partners and 500 new application service quantity. So we already exceed the total revenue of last year in the first half of this year.

Year-on-year growth attributable to Weimob Cloud ecological business revenue, 129.8%. And we have 100% ecological partners migrating to WOS already. So there are many personalized services available, for example, [indiscernible] uses our WOS. And -- our developers have created a lot of personalized features for them to satisfy their needs. And Lenovo is also served by us as well. So more and more enterprises and merchants in the future will be on our cloud platform, using personalized services. At the same time, we are enriching our cloud ecology. So there are content flow, service, upside and overseas ecologies, and they are all based on our WOS technological platform.

Now, let me comment on our globalization strategy. Overall speaking, we are implementing it steadily. So apart from our ShopExpress products, we also offer overseas traffic in terms of Google, Facebook, TikTok. So these are some overseas marketing work that we are doing. So such traffic is rising. But right now, it is not of a big volume yet. So perhaps U.S. $1 million per month roughly, but then we are still in the growing stage in this regard.

Then let me comment on our business outlook. I believe you are more interested in the second half of the year and also our overall business developments. First of all, I would like to share with you our outlook for the second half. In the first half, there was the impact of the pandemic and the macro economy as well. So our financial results has been affected. However, my personal judgment is, of course, I cannot come to a judgement on the overall Chinese macro economy, but for the industry, I believe we have already passed the most difficult moment. Since the start of the pandemic, all the way to the relaxation of lockdown, I think our advertising business has already seen the trough and it has rebounded.

And then starting from like May, June and July, Well, it kept on recovering, in June, there is a 50-odd percent increase quarter-on-quarter, and in July, up 20-odd percent year-on-year. In the second half of the year I believe that the situation will not be worse than now. And the pandemic will be normalized. Then we believe that we should have more confidence, and there should be greater guarantee for good business.

In the second half of the year, of course, the overall macro environment is not particularly good. So in the second half of the year I think the growth will be around 30%. If you look at the figures in July and August, it shows more or less the trend. But if we do a breakdown of the revenue, it may not be as high because for SaaS there is the need for amortization. And so, for the whole year, it may not show this number.

For advertising business, again, it has already seen the trough, it is rebounding. In Q4 last year, there was regulation of the industry and also macroeconomic sector and the pandemic. So from Q4 last year to Q1 this year, overall advertising revenue showed decline. However, from May we can see that the advertising revenue is rising. As of August the per day consumption has already risen 50% to 60% quarter-on-quarter, comparing with the lowest point. This year, starting April, there is an uptrend. So if we look at these trends this month, the [scissor] shape is just formed. So this year, August is more or less the same as last year, September this year surpassed last year, September towards the end of this year for advertising comparing with last year. I think there would be a 20% growth in the second half this year.

So concerning the future economy, there is still much uncertainty looking at the present moment, if you look at data in the past 2 to 3 months, I believe that the situation is clearer and in the coming half year and next year, we are optimistic. So basically, this is our results outlook. And of course, there are some concrete measures that we will put in place, #1, increase the number of big customers and enhance the value of single customers. By increasing revenue from moving up market, well, next year, we hope that it will go up 50%. And then after that, up 70%, we hope, then in the future, we will be better in withstanding risk, and we won't be affected that much by SMEs. So in the future, we will do more -- moving up-market and industrialization. We will develop more industries.

At the same time, we are identifying a unified business system for retail companies. So in the future, we hope to offer a smart system for the retail industry. So no matter whether we're talking about private domain or smart shopping guide or Smart Retail outlet and also [flow] private domain operation, we hope to offer a complete solution including CDP+MA and also WeCom Assistant. In the first half this year, we are working with [Center PaaS] cloud in order to build a digital retail business. And in the retail scenarios, we believe that shopping guide is very important. So while we have super shopping guide, we hope that we can continue to do more training and also user management.

So on the marketing end and also on the retail end transaction system, we can capitalize on our strengths and then build a new smart super shopping guide solution. And then for digital retail, after we build this solution for customers, then with the shopping guide, we can set standards and also train the system. So it will be a full link, it will be a closed loop, helping companies to enhance their business efficiency and execution capability. Now many customers are using our new integrated shopping guide solution, for example, [HTAB] and so on. So for this solution, I think customers are quite satisfied. And for those using our shopping guide app, the use frequency is very high. So in the future, this app will become a smart system.

So from knowledge, training all the way to task completion and also marketing, conversion, customer accumulation, a closed loop can be formed. So in the market, there is no other competitor of this system. So in the area of Smart Retail solutions Weimob is going very deep. And then in the future, there will be payment based on account. So we can do that as well in the future. So customers will be charged in this way for WOS. So we will make use of the technology platform, of WOS, to offer 7 core products. And then there will be retail -- Dining Retail, Smart Retail, Smart Fresh, cross-border to the sea and so on. These are some solutions available. So all these will be provided through WOS.

We will also improve our ecology. We will deepen it and broaden our customer service and scale. And then concerning interconnectivity, by means of our private domain [3 piece set], WeCom Assistant, OneCRM, CDP+MA, we can offer solutions. So for OneCRM it is already launched next month. We can offer a very complete private domain solution to customers.

For TSO, so we are serving 50 top customers already in the first half, revenue is CNY 50 million. So this is -- this is incorporated under Merchant Solution, and then for TSO in the coming 3 years we are able to show an annual growth rate of 50% for merchants. They have strong need for flow and also integrated solutions. And right now, we focus a lot on integrated solution and also traffic. So we hope to be able to focus more on advertising investment into Google and Facebook and so, at present if you look at the overall progress it is still quite steady in terms of urbanization and for the future we have much expectation.

So basically that's all from me today. Now, I will ask our CFO to go through our financial highlights. And then after that, we will have Q&A session.

[Yi Cao, executive]

Okay. Thank you, Mr. Sun. Investors, good evening. Now, I'm going to report to you our 2022 first half financial results. So if you look at the overall performance, of course, we are affected by the external environment. Since first half 2022, external economic environment has changed significantly. So this morning, I read some figures from January to July, for consumer products, it's down 0.2% overall speaking. So since the consumption segment is rather weak, there are then a lot of challenges for Weimob. So given such headwinds in the external environment in the first half this year, we insisted on our strategies. Our strategies are not changed. So we aim to have lowering cost and improving efficiency.

In first half 2022, our total revenue was down 6.2% after adjustment -- year-on-year after adjustment. And of course, in the second half of the year, we will be more focused on the strategy. We will try to lower our costs and improve efficiency. So last year, there is CNY 423 million of revenue based on total dimension. So it is a gross income. But then this part is being excluded. So now there is a decline by 6.2% year-on-year. Subscription revenue increased 5.7% year-on-year. So it is very resilient. Merchant Solutions, because of impact of the advertising cycle, the revenue was down 22.3%.

Now I am going to talk about number of paying merchants and ARPU. In the first half this year, for the 2 business segments -- in first half 2021 subscription accounted for 60.4% of total revenue, and in the first this year subscription has a share of 64.6% so is higher, for number of merchants for subscription solutions, last year is 64% in share, this year 80% almost. So that is distribution of a number of paying merchants. I think this is because of the sensitivity to business cycle of the 2 segments.

Well, for SaaS contracts, where, as you know, the contract value will be split on the contract term -- according to the contract term and for SaaS income, it is not only relying on new account opening. There is also existing customers' income. So relatively speaking, it is more resilient for Merchant Solutions, advertising commission accounted for a big share. So advertising sector is very sensitive to business cycle. So for Merchant Solution in the first half of this year, given all the headwinds, it has declined. So for these 2 segments, well, they are slightly different in terms of their sensitivity. We will continue to lower our costs and improve efficiency. In Q2 this year, we improved efficiency. And in terms of personnel costs, well, it is being optimized. So as a result, we have optimized personnel cost to CNY 300 million per year.

In the second half of this year, when the economy recovers. The future growth rate of revenue will go back to a more reasonable range and cost will continue to be controlled and optimized to promote the breakeven of second half of 2023. In first half this year, we have sufficient capital, total assets was CNY 9.358 billion monetary fund's and equivalents, CNY 3.68 billion. Our overall financial structure is healthy.

Now let me give more details about our revenue side, under the pandemic were different segments showed different change. In the first half this year, Subscription Solutions revenue last year was CNY 549 million, so there is a slight increase to CNY 581 million and number of merchants last year, was 101,867, it rose to 103,616 regarding churn rate was slightly affected because of the economy and the pandemic, but it only rose by 1 percentage point, from 11.1% to 12.1%. So this is within controllable range. We continue to improve our efficiency and add value. So by offering more support to merchants, we hope to enhance merchant stickiness.

In the first half of the year, ARPU of Subscription Solution increased, last year is 5,395 and now it's 5,608 per merchant, so up 4%. In the first half this year for subscription revenue it is mainly affected by COVID-19 in April and May orders were lower than expectation by 30%. Then if we look at merchant solutions such as now, the year-on-year revenue was down 22.3%, and if we look at the details, paying merchants more or less flat. So it is quite resilient. In the first half this year, paying merchants accounted -- the number of paying merchants was 26,770. Last year is 27,484. We continue to open some new media channels, for example, Kuaishou and Little Red Book and also other traffic channels. So we keep on developing new customers through these means and then for Tencent Advertising, we have got quite good progress in some e-commerce customers.

So given the headwinds, we are still able to maintain recently number of paying merchants. In the first half Merchant Solution revenue was down mainly because of merchant advertising budgets was down. Single merchant revenue last year was 14,909 and this year in the first half, it came down 11,899, down 20% this is the main reason why Merchant Solution revenue came down. And this also reflects the economic and business cycle. So merchants advertising budgets are very sensitive to the economy. When the economy recovers, then in the second half, there should be quite a good recovery.

As such as now, COVID-19 cost impact on subscription order -- so we have some analysis. Through this analysis we want to understand the gap in orders to see how big the impact was in the first half? And what about the second half, how big will be the impact. On this slide, we have done some analysis. First, there are a lot of underlying data, I won't go through the details. Our model, our methodology is that we categorized our business lines. So e-commerce retail and so on, so they were affected the pandemic in different ways, for example e-commerce, logistics and delivery will not change. And relatively speaking, the impact of the pandemic was smaller. And of course, in April and May, there was locked down so there was impact on new comers for retail, there were scenarios both offline and online, offline was more affected for dining and tourism, the same for Weimob's whole business mix where we have greater share in Shanghai of e-commerce dining, and tourism, Shanghai has a lower share. So we have to look at the regional breakdown, whether or not a certain region is affected by the pandemic.

So we need to analyze all these underlying data, and we can see that in the first half this year -- for Q1 and Q2, orders were down by 7% and 32% as compared to the original expectation. So in the first half, the gap caused by the pandemic does not only affect the first half. It will also affect the second half. So in the first half for subscription orders there is an increase by 5.7% if we exclude such impact from the pandemic, then in the first half of the year for subscription revenue, the hit in increase should be 17%, at the end of March during a result session, we gave a forecast, we said that this year, subscription revenue in the first half will grow 10% to 20% for the whole year, 20% to 30%. However, if we benchmark this, then -- in the first half of the year, completion is quite normal apart from the one-off impact from the pandemic, if that was excluded, then in the first half, subscription revenue showed a normal growth.

The second half will also be affected as such as now, so in the second half of the year, it is expected that year-on-year growth in order will be around 30%. At the same time, because in the first half, there is the order gap affecting the second half as well. So subscription revenues growth would be 10% to 20% in the second half. If we exclude the impact on the second half, then if we look at impact on the 4 quarters, then 3%, 18%, 9% and 7%, so 9%, 7% impact of the second half if it is first. Then in the second half of the year the growth should be 20% to 30%. This year, overall speaking, our basic business is quite normal. So basically in the first half of the year, there is a order gap because of the pandemic exacting impact on the whole year.

The last point change in gross margin, in the past 2 years and also first half this year, we take half yearly look of the gross margin. So you can see here that gross margin is coming down. The reasons are different for different business segments. Overall, gross margin was affected by the gross margin of subscription and merchant segment. However, for subscription and merchant revenue mix. Well, gross margin of subscription is lower than that of merchants. But then this year, subscription accounts for bigger share. So overall gross margin came down. For merchant gross margin it is also affected by composition of business. In the first half this year, because advertising cycle impact -- the net commission came down for TSO and also service type revenue has showed good growth.

TSO and service income might require more staff costs and gross margin is lower. So if it's share rise then that means merchants gross margin will be stimulated. So merchant solution revenue -- gross margin in the first half this year showed a decline. That's the main reason. For subscription growth margin on the right, we did a detailed analysis. For subscription cost, R&D capitalization and starting last year, for subscription cost, Heading was incorporated. So for Subscription Solution gross margin it was then affected. If these 2 factors were excluded then for Subscription Solution gross margin in the past 2 years, maintained a relatively stable rate at 80% to 90%.

So I think this is mainly because of the accounting arrangement leading to change in gross margin. In the past few years, we increased investment in R&D. That was also another impact, because of impact of the economy and pandemic in the second half of the year, revenue growth did not achieve the target, and we try to lower cost in May and June. So it could not be realized in the first half of the year. So adjusted net loss CNY 567 million. That includes the incorporated business from Heading which had led to a loss of CNY 100 odd million.

We believe that investors are also concerned about one point, starting second half of last year and first half this year, we experienced quite a big loss. So will this loss continue? Will it be reversed in the future how are we going to achieve a turnaround, we have done an analysis. In the past 2 years, starting first half 2020, so half yearly period in the past starting 2022 to 2023, 3 half year period you can see from this slide an analysis.

So if you look at the blue bars, they mean positive contribution to profit. In 2020, to first half 2022, so here, you can see CNY 1 million starting this year first half, it is a forecast. So we gave a range. So below the dotted line, that means there are negative contribution to profits, those are expenses and costs, so for companies like us our cost and expenses are mainly staff costs, staff salaries and other expenses. For these expenses, there is R&D investment and R&D staff costs, other people, staff costs, other staff costs and so on. So it is listed as a percentage of that particular period. So below the dotted line, if the percentage exceeds 100%, then that means there is a loss.

So this slide gives a detailed analysis of the past few years. So what has changed in the past years? And how are we going to achieve turnaround? Before 2020, including 2020 as well, we were able to achieve breakeven. The turning point is in 2021. In early 2021, external environment and the external economy was good. Our projection of the industry was optimistic. So at that time, we introduced strategic upgrading of our 3 strategies. We increased investment into R&D. And also we introduced the WOS. And during moving up-market, we enhanced our operating capability. So we actively increased investment, and we increased the short-term financial loss in order to achieve growth in the future. So those losses were within our plan.

Starting second half of 2021, the external environment experienced radical change in the economy, politics and also the pandemic. So business development was difficult. Overall, external environment changed significantly. So we believe that this is just a small cycle as more episode in the overall history. Our fundamentals have not changed. So we are trying to enhance the efficiency of customer acquisition. We are integrating online, off-line. All these have not changed. In the future, when policies are relaxed when the economy recovers, when the consumption market becomes warm, then we believe that in the future, 20% to 30% revenue growth is reasonable and normal.

As Mr. Sun said at the beginning, our view is that the worst time is over. In terms of cost and expenses, we are focused on our strategy. We will lower cost and increase efficiency. In the first half this year, we optimized our structure and we're able to save annualized cost by CNY 300 million. In the future, we'll continue to control cost, hoping to deliver CNY 170 million optimization in cost. So all these will be realized in cost and expenses in the coming years. So if our revenue growth goes back to 20% to 30%, and if cost and expenses are better controlled than we will continue to execute our strategies. We can achieve healthy growth, and then we will go back to a breakeven in the second half of 2023.

So this is my analysis of our financials, and I hope that we can give investors more confidence, so that you know what has happened with our company. So that's about financial. So now we will proceed to Q&A.

[Operator]

[Operator Instructions]. First question is from CICC, Zhao Liping.

[Liping Zhao, analyst]

I have 3 questions. First question, for subscription service, in the first half this year, you achieved positive growth. And in July and August, if you look at the figures on a quarter-on-quarter basis, there is increase, which is the biggest driving force from which particular industry for the second half for 30% growth in cash collection, which will be the biggest industry in this regard?

The second question is about margin. You said that you are doing optimization and your counterpart your peers are also working on optimization of personnel. They have also seen some effectiveness. So concerning personnel optimization, will you continue that in the second half? So when will you see the results of such optimization and when do you think you will achieve a breakeven or a turnaround.

The third question is about video number. Mr. Sun, said that growth has been quite good for video number. So for the video number, what will be its future development direction, and what will be the way of monetization?

[Yi Cao, executive]

Subscription revenue in the second half of the year. What will be the outlook? I already said that in April and May, because of the pandemic and also lockdown, some delivery of contracts and payments have not been completely satisfactorily. In June we saw a new high, in July, comparing with June, there is some decline, but still there is 27% year-on-year growth in August, where it is not finished yet, this month is not finished yet, but looking at the data that we have, it's more or less the same as our forecasted in the first half of the year, so the churn is already formed. In the second half concerning cash collection or contract, our contract cash collection is more or less the same. So in the second half of the year, there may be a 30% growth. Mr. Tao already presented the financials in a detailed way. So if you talk about cash recovery, it is quite good.

As regards the particular industry, I think retail is the bigger one, home furnishing, building materials, fashion, footwear and apparel, FMCG, these are more important industries. GBU, SMBs are also recovering quite well, for SMEs we are also working on moving up-market. So for those customers with potential we are trying to increase our ARPU. We want to service the customers with better potential. Looking at all the data right now in the second half there won't be the pandemic outbreak as in the first half, the pandemic and all the anti-epidemic measures will be normalized. We think that for subscription revenue growth, there should be some certainty.

Regarding margin and also personnel optimization. In the first half we did some optimization, overall speaking we are optimizing on the redundant staff and also the marginal staff, peripheral staff, as of 31st December last year -- and also now there are 6,909 people. So there is quite a big reduction, 24%, but then around 12% or 13% of people left, because of natural wastage and turnover. So for our own active optimization around 12%, 13% -- because of the pandemic in Shanghai in May -- it happened in May and June, mainly, so there was no impact on the cost in Shanghai, however loss actually was accentuated.

In the second half of the year, we will still do some personnel optimization, but the percentage will not exceed 10%. After optimization is completed, then next year there won't be similar optimization exercise. In the second half of the year, optimization will happen to the peripheral stuff and noncore businesses. So core businesses like Smart Retail, our headcount has increased this year. And for R&D, because WOS in March this year did public test, and most merchants have migrated to WOS. So, for R&D team -- the number of R&D people will come down slightly.

So, in the second half, there will still be some optimization, where overall speaking, our optimization is reasonable and rational. We are not going for very radical optimization. We are optimizing our organization in a reasonable way. And now, efficiency and productivity has improved significantly, year-on-year growth in June and July is quite good after optimization of personnel productivity per person is now better, they are all more motivated now. So, I think optimization is done within reasonable range, the impact on our core business will not be that big. So, on the cost side, we believe that in the second half of the year and next year, the effects will gradually be seen.

So, again, based on 20% to 30%, revenue growth in the second half of next year, we should be able to breakeven, then concerning video number this year, we achieved quite good results. Just now, I gave you a brief introduction. So there are 2 sides, merchants, live streaming or merchants broadcast. So we have them do it. And then another thing is talent broadcast. So products are supplying -- supply chain, these are things that we're working on. So we achieve good results on both sides.

So I will ask our COO to supplements.

[Shiming Yin, executive]

Let me explain the situation about video number. Future development direction, I think we are very positive about future development or video number, in the e-commerce area. While there may be some worry about the drive for from traffic in the private domain, but then of course, it provides a lot of traffic and clusters. Video number is very perfect as a scenario for the connectivity, so during live streaming, people will scan a code to become members. So I think these 2 together will actually capitalize on the merchants on WeChat. So if you refer to the data right now for merchants, which have already opened the video accounts, the transaction rates and also the ASP are higher than those without video accounts. So monthly GMV conversion is very high more than 10%. So I think if you talk about development of video number or video accounts, we are positive it will give a very good macro boost to our overall development.

Concerning monetization, there are a few things first. Software SaaS, second advertising, third, TSO plus advertising link, and 4 Operation Service for software, we have seen some very positive change. So renewal of fees and increase in purchase. So because performance is good, so renewal rate is much higher. That's the first thing. #2 for video number, it also stimulates the sales on enterprise WeChat. While we have seen a significant growth and it is closely related to video number, for enterprise WeChat that is WeCom Assistant and also WeiMall sales rate, there is some binding effect.

So on this point, I think it is very good. And when people want to open a video accounts they will buy WeiMall, as well as, WeCom Assistant. So if a customer wants to do advertising then with advertising, they will also do video accounts because both will drive growth of one another CDV NIV and so on these will become useful. So I think it will be a very good monetization channel TSO advertising and so on.

On operation level, relatively speaking, we are more prudent as Mr. Sun said there is live streaming or talent broadcast or merchant broadcast, we offer services in these areas, but we have to be prudent. I think development of video number is quite good right now. It is giving us good development opportunities. So that's all from me.

[Operator]

Next question TF Securities, [ Yang Lining ].

[Unknown Analyst]

I have 2 questions. First, just now, you said that in the second half of the year subscription will be good advertising as well. And you talked about WOS, and in the future, you will do more about Smart Retail and also related solutions. And then Dining, Smart Retail related businesses a lot are mentioned. So, can you tell us what is the main focus of your strategy in which areas?

Second in the past there were some M&A projects and right now, how is the integration situation of those projects? In the future do you think there are opportunities for M&A, and what is your plan?

Third question about video number, can there be some projection on increase in business in relation to, for example, advertising and SaaS, okay?

[Taoyong Sun, executive]

Well concerning the strategic focus to way WeiMall, we think that our strategies are very clear. You asked for our main focus, I think we have 3 strategies moving up-market, ecosystem build up and globalization. And just know I talked a lot about different systems based on different business scenarios, all these systems are built on WOS, on the WOS operating system with WOS, then when we work on industry solutions and products and also integration with [Shanghai] Heading and various integrations. WOS is the bottom layer infrastructure or our ecosystem companies and also our products built on WOS. So WOS is the bottom layer infrastructure.

So, effectiveness of products that we develop will be greatly enhanced and for our merged and acquired companies efficiency will also improve significantly. We together with Heading we develop the smart Supermarket Solution and now like 30 R&D people can already work on this solution. In the past this was not possible. It was not possible without 100 people, so now 90% of the systems were completed already and then we are now able to complete the work more easily. So with WOS, the efficiency is greatly enhanced. And then through WeiMall cloud, service system, there are more and more ecological scenarios that will give us income in the future. So first, our core is the big customers, we want to service big customers, originally our platform is not adequate. So that's why we built WOS, with WOS we can better serve our big customers. And big customers have more needs for products and more personalized demands with WOS we can better satisfy them. So these 2 strategies do not conflict one another, they complement one another.

So we want to work on industrialization and we want to sign contract with top brands and customers. And with our products and Weimob's product and services and also our working partners products, we can put together complete solutions. When it comes to smart operation, no matter whether we talk about shopping guide or private domain, or WeCom or [CDT]. All these are based on our WOS 7 plus one system. So they help our companies. In the past, it's an online more now, it is online plus offline integrated system members, private domain, shopping guide, all these can be completed on our system.

Let me give an example. So a company may have 7 to 8 internal systems, in the future, they can use things available as Weimob. Even if there is something that we don't have, they can rely on our working partners. So with WOS, in the future integration and connectivity, better data will be well connected. And then they can do a lot of applications and development things will be more simple. There is not a need to repeat work done. So I think in the future, the value is going to be limitless. That's our product strategy, and also our overall business strategy.

And then regarding M&A projects and the progress of integration. So when it comes to integration of Heading, and also [Center PaaS] cloud. M&A, of course, important moves and the biggest one is Heading. And then for dining, the impact was bigger, especially with the pandemic. And so, when it comes to integration with Yazuo, I think it is not as expected as has not brought as much revenue growth as expected, because of the pandemic, especially this year, revenue has come down. So if we talk about our M&A strategy, dining, and our core retail scenarios may be a bit too far away from each other. And like Heading, which is closer to our retail scenario. Besides for dining, it was more affected by the pandemic than retail, where people can still complete transaction without going to the outlets. But then for dining, if people don't go to the restaurants then they have to order for delivery. So we don't think that this is a problem with our M&A strategy. I think it is because of the impact of the external environments.

When it comes to integration with Heading. Well, we have smart super store and smart fresh and so on. So these are some solutions that are being implemented steadily. I think our integration with Heading is very successful. And the team's integration is also good. They are working well together they are quite good -- quite well motivated. In first half this year Heading was quite affected by the pandemic, because of customer payment problem. But in the second half of the year, Heading was able to achieve a break even. So in the past one year Heading put in a lot of R&D resources in the integration with us. But now, I think in the second half, we should be able to see a breakeven this is quite good.

And for [Center PaaS cloud] we are still integrating, we think that shopping guide is a very important product in the future, when it comes to merchants, I think they are an important and for shopping guides. So when it comes to smart shopping guide, smart store, smart shop manager, online offline integration, while shopping guide will be a very important hub. So I think it is going to do a lot more. If enterprises use all our smart operation tools, then the subscription revenue per year should exceed 1 million. So for this particular product, there is no competitor at the moment. I think customers use experience is very good. So that's about all the integration for video number as search is now in the future for existing SaaS customers.

Well, for fee renewal and retention, I think video number is going to be very helpful. And for future TSO operation, revenue growth there will be some help in the future. Video number, well, we have short video and also live streaming platforms. I think in the future, our ranking will be enhanced. So we are positive about prospect of video number. I think right now the impact on the revenue is still limited, because if you look at the live streaming platforms, the monetization and income arising from small to medium sized live streaming is not big. But if you look at fashion customers, monetization of those live streaming customers is good. Besides, we have got talent broadcast as well. So we are working with merchants. And in the future, we will see some income from there.

I think video number will contribute quite a lot to advertising revenue. Well, I have a number to share, but not an official one. So next year video mode -- video number may see a scale of 20 billion and Weimob can account for 10% of CNY 0.10 advertising. In that case, there would be a CNY 2 billion increments. So CNY 20 billion right now, we may be 1/3rd of the second platform that is 1/3rd of Kuaishou. So if the timeframe is longer. Can we really see CNY 20 billion next year? I think in the future, this is going to contribute a lot to the advertising business.

[Operator]

Next question is from Citi Group, Brian Gong.

[Brian Gong, analyst]

I have 2 questions. First, can you share with us in the recent months? Can you tell us the recovery of your customers for example, Smart Retail and also WeiMall? You just said that you are working on FMCG food and home furnishing materials in the second half? Will there be some new industries, where there will be room for further expansion?

Second question is about advertising. Can you do a breakdown by industries in the coming -- in the recent months? How is the recovery, which industry is recovering better? Which one is lower in the second half of the year? What will be the overall operating strategy for advertising? How are you going to increase gross income? And will there be some room for upside so that you can have better profit? Thank you.

[Taoyong Sun, executive]

Okay. Well, there are quite a lot of SaaS products. Well, let me comment on pipeline businesses first or advertising businesses. Well, advertising business outlook. Well, starting Q4 to last year Q1, there was an overall decline. I will not repeat the reasons. But then it bottomed up in April in May and June, there was increase from the trough, there was an increase by 60% from the trough. So, right now it's more or less the same as last year. So, right now is around CNY 33 million more or less the same as last year. In September, we will reach CNY 36 million we believe in Q4 if the economy recovers in a better way than this value will even be bigger. So, in the second half of the year, for advertising, I think it has already bottomed up it is recovering, if you ask for the specific industries, first e-commerce -- brand ecommerce and retail chains, [adult] education and then internet platforms also making investments, the fourth one is SMB. The growth is good this year, in the second half of this year and next year I think growth relies on the growth of particular or individual industries.

Then regarding video number, and also [SOCO] and so on in the future well, they will be with Tencent advertising. So we're talking about commercialization of video number, it is going to be a new growth driver. And then SMB regional growth is fast because of the macro environment, big customers may be subject to bigger impacts, but for regional SMEs, I think it will be better. We will also develop some new regions. So, if you look at the number of customers in advertising, there is only a decline by 2 point something percent for big customers that budget is reduced more, and then growth there is still some room for growth, some industries are recovering. So, there is growth like e-commerce, education, internet, local lifestyle industries. So, there is some recovery.

Number for new channels, we are developing them, recently we have seen fast growth in -- in quite show this year [Xiaohongshu] this year [Xiaohongshu] maybe doing well like Little Red Book and so on they are all growing. So, at present this month is more or less the same as last year. Overall speaking, we are in an upward trend. So, in the second half compared with last year, I think the growth in advertising will be more certain. For Q3 the base is not big. So in the second half growth will be rather certain.

Regarding SaaS and also breakdown by industry. We have WeiMall, Smart Retail, WeCom Assistant, Smart Dining, Heading's products. So, if you're talking about overall recovery WeiMall and Smart Retail are recovering, Dining is still affected by the overall market. So, we only categorized big customers in greater detail into different industries. So apparel, footwear, FMCG, food, fashion, beauty and so on. These are the sectors, then for GPU the industries are wider.

Mr. Cao, do you have anything to add concerning GBU? Which industries are growing in a better shape can use supplements.

[Yi Cao, executive]

Okay, first off in the second half of the year our overall results with SaaS was affected by COVID-19. And there are 2 main factors, first with the pandemic and lockdown we could not see customers to execute orders. So, I think this is in particular -- this is particularly the case in Shanghai. So sales was greatly affected during the pandemic for big customers in Beijing, Shanghai, Guangzhou there are more bigger customers. So, big customers were affected more. And then remote communication cannot replace face to face tendering and activities and events. So, during the pandemic, this is the main reason why we were affected.

And with the waning of the pandemic in June and July, first of all in Shanghai there was quite good recovery as said by Mr. Sun, e-commerce retail in GPU and also for big customers we can sell we can make sales, big customers decision-making duration is longer, but then in June we see -- we saw quite good recovery. Comparing with SMEs, the trend is lower with large customers. However they continue to recover. So GPU represents SMB customers, their recovery is stronger in June and July. On a year-on-year basis, we're at 20% to 30% growth in order recovery.

And then, when it comes to restaurants and tourism, there are more customers in other places and other than Shanghai. So they achieved quite good results because that was the peak season for tourism and holidays. So, this is the information that I can supplement. Thank you.

[Operator]

Next question is from [indiscernible].

[Unknown Analyst]

I have one question. Looking at the direction of internet development cross-border to the sea is a very blue ocean direction. And among the industries, there is quite a lot of help from these cross-border merchants, and there are logistics service providers and payments and also overseas giants' providers. Now, Mr. Sun, how do you see this cross-border e-commerce service providers competition layout in the future, what kind of competitive advantages can you create?

[Taoyong Sun, executive]

First of all, globalization is one of our 3 main strategies. So, cross-border to the sea is also an important step of globalization, this year given the overall macro economy and external environment regarding cross-border to the sea, we did not invest as much as expected. The main reason is that regarding the macro economy and political situation, there is still much uncertainty. Cross-border to the sea faces very deep ecological barriers.

So if we use the SaaS products, now perhaps we need to invest 10 times off the existing -- of the current R&D expenses. So given all the uncertainty, we do not invest as much as expected. Our current strategy in terms of globalization is that in the long run globalization is a very important strategy. But at present we hope to rely on enterprises advertising investment, we hope to get that part first. So, right now, we will not go for overseas SaaS customers, we don't want to -- we do not aim to increase that number of customers too much. So, through advertising, we hope to earn more profits. And at the same time, we can satisfy our ShopExpress R&D investment needs. So, regarding globalization, the rhythm may be slower than in the past.

But overall speaking, we think that we need to be more reasonable and rational and given the current environment if we invest a lot of capital, then there would be heavy burden on R&D and our loss as well. So, right now, we adopt a domestic TSO strategy. So we provide traffic and flow and SaaS and operation, and we offer these services to customers, and then customers will find it easier later. So, during this stage, we hope to be a bit more conservative. In the future, when customers use more of our various products, and then in terms of the traffic and flow operation, they are doing a good job then we will gradually invest more. Globalization is our long term strategy, but for the short run, we will tend to be more conservative.

[Operator]

Thank you, because of time constraints, we will conclude today's meeting here. On behalf of the management thank you very much for joining this conference call. If you have further questions about Weimob, please feel free to contact the IR team. Thank you and good night.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]