QuantaSing Group Ltd
NASDAQ:QSG
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Good morning and good evening, ladies and gentlemen. Thank you for standing by, and welcome to QuantaSing Earnings Conference Call.
[Operator Instructions]
Please note that today's event is being recorded.
I'll now turn the conference over to Ms. Leah Guo, Investor Relations Associate Director of the company. Please go ahead, ma'am.
Hello, everyone, and welcome to QuantaSing's earnings for the fourth quarter and fiscal year 2023. With us today are Mr. Peng Li, our Founder, Chairman and CEO; and Mr. Dong Xie, our CFO; Mr. Li will give a general business review overview for the quarter. Then Tim will discuss the financials in more detail. Following their prepared remarks, Mr. Li and Tim will be available for the Q&A session. I will translate for Mr. Li. You can refer to our fourth fiscal quarter financial results on our IR website at ir.quantasing.com.
You can also access a replay of this call on our IR website when it becomes available a few hours after its conclusion. Before we continue, I would like to refer you to our safe harbor statement in our earnings press release, which also applies today's call as we will be making forward-looking statements. Please note that all numbers stated in the following management's prepared remarks are in RMB terms. And we will discuss non-GAAP measures today, which are more thoroughly explained and reconciled to the most comparable measures reported in our earnings release and filings with the SEC. I will now turn the call over to the CEO, and Founder of QuantaSing, Mr. Li.
Okay. Hello, everyone, and thank you all for joining us today. Despite the challenges presented by the current state of China's economy, we found ourselves well placed to benefit from new opportunities in the Adult Learning Market. Well, the fourth quarter of our fiscal year is really a period of moderation. We recorded an impressive 31.7% year-over-year growth in revenue from the same period last year.
Additionally, our adjusted net margin has improved significantly, reaching 10.9% compared to 0.7% during the same period in the last fiscal year. Our success has built by our robust pipeline visibility, diverse revenue stream and effective strategy approach. I would now like to reflect on our recent success and broader performance and share some operational updates.
As of June 30, 2023, we had around 94.3 million registered users, representing a significant increase of 60.6% compared to the previous year. The number of paying learners rose as well, increasing by 29.9% compared to the previous year.
Our focus on flexible and scalable business model has allowed us to quickly add more content. This, in turn, attracts more users and fosters constant growth. We offer a diverse array of courses, each thoughtfully tailored to our distinct customer groups. For instance, for our financial literacy content, we offer accessible courses that guide beginners through topics such as asset management and achieving stable returns.
Our learners can further explore specialized courses like financial analysis and family asset allocation. We diligently update and enhance our course to align with shifts in industry policies. This ensures our learners have access to the most up-to-date market insights.
Our focus on improvement has led to better customer experience. Thanks to our operational enhancements, our user survey shows that our financial literacy course completion rate now stands at an impressive 97%. We are constantly updating our intelligent learning tools to access learning companions for our users. These tools use engaging AI interactions to assist users in pulling key financial metrics from financial statements.
During the fourth quarter, we once again authorized the Financial Literacy White Book with the industry experts and authoritative organization in China. This was our third great year doing so. The White Book assesses the financial literacy of Chinese residents across various demographics. This research serves as guiding light or the institution seeking to expand financial learning across the nation.
Our participation reflects our solid standing in the realm of financial literacy. We take immense pride in our contribution and are eager to help enhance financial literacy levels within society.
Beyond our financial literacy efforts, we have also taken steps to boost the user engagement and enhance our online cost repurchase rate during the fourth quarter. We organized a series of offline competition. One such event was a calligraphy competition targeted at senior adults. Participants applied what they learned from our cases, showcasing their learning outcome while enjoying face-to-face interactions with fellow learners.
The participants created around 400 calligraphy works during the competition. To determine a winner, we engaged our broader community in the voting process. This type of offline event motivates learners to stick with their studies. It also encourages them to invite friends to join our courses. We believe that this offline competitions helps foster tight-knit sense of community among our learners. We see them as both a means of promoting courses and as a way to build community.
As a part of our growth strategy, we are eager to grow our -- bring our customers' new opportunities for learning. One core part of this strategy is the creation of new personal interest courses. These courses are carefully designed to meet a diverse range of interest and tap into unrealized market potential. They help to enhance our appeal and boost engagement levels. Furthermore, the repeat purchase rate for other personal interest courses has risen to 18%.
By refining our course offerings, we enable learners to complete an in-depth learning cycle on our platform. For instance, in our short video production course, we guide learners through the entire creation process. This encompasses subject selection, clip editing, content creation and even using short videos to promote products on the live streaming platform.
In a similar way, we have fine-tuned the content of our memory courses to be more practical, instead of theoretical. This empowers learners to apply their knowledge in real-life situation. Ultimately, this leads to a more fulfilling learning experience.
Meanwhile, our addressable market remains extensive. As outlined in Frost & Sullivan’s Industry Report on the Adult Learning Market in China released on September 6, 2023.
The Frost & Sullivan report affirms the significant market demand for senior citizen education. According to the report, the size of the senior adult learning market, as measured by revenue, is expected to reach RMB 120.9 billion by 2027. This estimate assumes state CAGR of 34% from 2022 to 2027.
We are well positioned to cater to this demographic. Many of our thoughtfully-designed courses address the specific needs and the interest of senior learners. As always, we remain committed to creating inclusive and accessible learning opportunities for people of all ages.
Our courses aimed at senior citizens especially crafted to bring them valuable knowledge and skills. This helps provide a sense of enrichment and fosters a feeling of continued growth and success. We are actively building new courses that cater to the interest of older learners. For example, we have developed a course on standing mediation, traditional practice that combines fitness, strength and inner peace. Our program, emphasis holistic approach boosting meridian flow, vital energy and the overall fiscal resilience. This course has grown to be a mega hit. It had accrued over 1.4 million registered users as of August 31, 2023. And its monthly gross billing reached around RMB 17 million.
As a company that provides itself on innovation, we are dedicated to enhancing our core business with -- while exploring new opportunities for growth. We are expected to announce the launch of dynamics new business initiative, live e-commerce, with a strategic focus on the Chinese liquor market. Our decision to venture into live e-commerce is rooted in multi-faceted vision. This new business requires minimal capital investment with little operation risk, while also acting as a result to further bolster our core business. We chose Chinese liquor as our entry point to the live e-commerce business. Chinese liquor holds an important place in Chinese society, especially when it comes to social interaction.
Our target, demographic is made up of individuals that are made middle-aged and older. This demographic demonstrates robust demand for Chinese liquor. In the post COVID era, online shopping has been -- become increasingly comment, and that trend extends to the purchase of Chinese liquor. As the forefront of online shopping today is live streaming e-commerce.
On one of the live streaming platform we operate on, there are over 300 million users with interest in Chinese liquor as indicated by our research report. This platform fosters an experience akin to wine-testing events allowing users to share their insights about Chinese liquor through live streaming. Recognizing this market opportunity, we aim to provide our users with an all-in-one experience that combines goods and services into a new -- into a single platform.
Our learning business model is also very mature. This is shown by our effective expansions of our QianChi and JiangZhen brand, which followed by the success of our older QiNiu brand. We invested in traffic at the front end, which is then converted into our private social media group. Through years of operation, we have built up substantial user insights. This allow us to effectively locate and acquire customers. We also have a well development -- well-developed array of marketing tools. This allows us to lock in traffic, locate loyal customers and convert registered users to paying learners.
By leveraging our experience in the adult learning business, we are now acquiring customers for our live e-commerce business in the same way. This replicable approach gives us control of our costs and ROI, even during the early stages of new business, Since launching the new business in June 2023, we have been very pleased with this operation results. We have generated RMB 13.3 million in GMV during August. While we expect a slight adjustment in our gross margin, we are confident that this new initial will have a positive impact on our net margin and strengthen our financial resilience.
While we maintained our revenue growth, we continue to improve our operational efficiency and expand our positive cash flow. Tim will explain our financial results in more detail later. We are leveraging AI to help to improve our operating efficiency. For example, we are using AI-powered intelligent voice message to remind learners to join our courses. AI-generated content or AIGC have also empowered us to provide a better, more efficient experience when learners pose questions. With AIGC, learners questions are categorized and draft answers are generated automatically. Tutors simply need to double check the answers from sending before -- sending them out. This has largely reduced the tutor workload during classes, and improved learner experience without sacrificing factual accuracy.
Regarding content development, we are implementing a four-in-one interface that combines transcripts, videos presentation slides, chat, and course refinement. At the same time, we also embraced the template-driven bulk generation of short videos, infographics and more. This has greatly enhanced our content development efficiency.
To conclude, despite the present state of the macro, we continue to refine our operations to meet persistent demand from individuals seeking an improved quality of life and the overall well-being. At the same time, we are strengthening our position as a reliable partner in corporate learning and development. Our ability to innovate and explore new ideas has generated outstanding outcomes for our business. Despite a seasonal lull, we generated robust year-over-year top-line growth, and our operational focus remains solid.
With strong pipeline visibility, we made the decision to stress particularly the expansion into live e-commerce. This will leverage our existing strengths to enhance profitability. As we navigate the ever-changing dynamics of the market, we are confident in our ability to generate sustainable long-term growth and success. We are grateful for the continued trust and the partnership with our shareholders.
With that, I will turn the call over to Tim to discuss the details of our financials. Thank you all.
Thank you. Before I go to into the details of our financial results, please note that all amounts are in RMB terms, last reporting period with the fourth quarter of fiscal year 2023 ended on June 30, 2023. And that in addition to GAAP measures, we'll also be discussing non-GAAP measures to provide greater clarity on the trends in our actual operations.
For the fourth quarter of fiscal year 2023, we grew our total revenues by 31.7% year-over-year and 2.6% quarter-over-quarter to RMB 828.3 million, mainly driven by the growth from other personnel interest courses.
Among our revenues, revenues from individual online learning services grew by 25.2% year-over-year to RMB 721.1 million or 87.1% of total revenues mainly due to continued demand for other personal interest courses consistent with our strategy to diversify cost offerings. Our gross billings of individual online learning services increased by 23% year-over-year to RMB 748.8 million.
Revenues from enterprise services increased by 102% year-over-year to RMB 103.8 million or 12.5% of total revenue, primarily driven by continued robust demand from both existing and new enterprise customers for marketing services.
Gross profit was RMB 712.2 million representing a gross margin of 86% compared to 82.9% in the same period last year.
Total operating expenses decreased to RMB 664.7 million from RMB 726.7 million last year. To break this down, sales and marketing expenses was RMB 573 million, representing a change of 7.8% year-over-year as we adjusted our staffing budget and increased spending on marketing and promotional activities for other personal interest courses.
As a percentage of total revenue, non-GAAP sales and marketing expenses, which exclude share-based compensation, decreased to 67.8% from 75.1% a year ago.
Research and development expenses were RMB 53.6 million, representing a decrease of 59.6% year-over-year, primarily driven by a decrease in share-based compensation. As a percentage of total revenue, non-GAAP R&D expenses, which excluded share-based compensation, decreased to 5.5% from 6% a year ago.
General and administrative expenses were RMB 38 million, representing a decrease of 39.3% year-over-year, primarily due to decreases in share-based compensation.
As a percentage of total revenue, non-GAAP G&A expenses, which excluded share-based compensation, decreased to 3.2% from 4.6% a year ago.
Net income was RMB 52.7 million, excluding share-based compensation, adjusted net income of RMB 90.4 million representing an adjusted net margin of 10.9% during the quarter.
Basic and diluted net income per share were RMB 0.31 and RMB 0.30, respectively, during the quarter. Adjusted basic and diluted net income per share were RMB 0.54 and RMB 0.52, respectively, during the quarter.
Turning to our balance sheet. As of June 30, 2023, our company had RMB 930.6 million in cash and cash equivalents and short-term investments compared to RMB 399.1 million as of June 30, 2022.
Lastly, I want to provide some color on our loss outlook for the fourth quarter of fiscal year 2024, which ends on June 30, 2024. We expect revenues to be between RMB 780 million and RMB 810 million, representing a year-over-year increase of between 18.3% and 22.8%. These projections take into consideration the current market conditions prevailing in the industry.
We remain committed to providing high-quality, personalized online learning services and offering a diverse range of courses. At the same time, exploring new business opportunities to improve our profitability. These initiatives helped drive our strong performance in the fourth quarter of fiscal year 2023.
Moving forward, we will be utilizing AI to optimize our cost structure and expenses, enabling us to operate more efficiently and effectively. With our strong financial position and diversified revenue streams. We are well equipped to overcome any challenges that may arise and capitalize on growth opportunities while continuing to generate value for our customers and shareholders.
That concludes my prepared remarks. Operator, let's open up the call for questions. Thank you.
Yes. We will now begin the question-and-answer session.
[Operator Instructions]
And today's first question comes from [ Kini Wang ] with CICC.
I have 2 questions here. So firstly, given the recent relatively soft capital market, how should we expect the next year growth of QiNiu in terms of the number of users and -- as well as the ASP?
And secondly, could you please elaborate our growth strategy on the brand new live streaming business.
Thank you. In terms of the financial literacy courses, and it's market trend and also the -- our performance, I think you asked a good question. For the -- for this market, is the -- first, I think for this, in terms of segmentation, our -- I don't -- first, let me clarify, I think for the -- our financial literacy courses, we treat it as a part of our one of the category of our total revenue. So for this kind of revenue, our management reviews our consolidated results when making decisions about resource allocation and assessing the group's performance.
As such, the group has only one reportable segment. And also in terms of the future outlook for our financial literacy courses, it is possible that if you see a year-over-year decrease in the absolute dollar amount we generate. This is in line with our strategy of developing a broad range of courses, which are due to learners with diverse interest and background.
In addition, we have taken proactive steps to identify users with low return over investment which is ROI, to ensure a sustainable growth for our company as a whole. Doing so means we can utilize our resources more efficiently and ensure that our cost offering gets the attention of users who will be genuinely be interested.
And for macro environment, now on the macro, you mentioned that the macro environment may affect the company's revenue. First, I think, let me clarify that. Our core customer base is made up of the mass public consumers. Demand for our financial literacy courses does not rely on professional investors. As such, the performance of our financial literacy courses is not tied to the performance of the capital market directly.
Second, I think it's important to note that the content of our financial literacy program covers the wide range of topics, not limited to the stock market. Even if the market underperform or maybe have some fluctuation, the idea of investing temporarily loses a few customers but we'll be able to leverage our courses to gain knowledge in other areas of financial literacy.
To this point, we have not observed a direct correlation between the stock market and the growth of the registered users for our financial literacy courses. I think the key is still our business methodology to treat our revenue as a whole and to see the market opportunity and to do our business based on the ROI and also the revenue diversification strategy.
Meanwhile, our -- I think our average revenue per user or ARPU has maintained a steady upward trend. This is due to our focus on delivering high-quality courses and value-added services. This reflects our company's core ability to attract new users and to provide value-added services that the existing users appreciate. So I hope that answers your question.
The next question comes from Steve Silver with Argus Research.
In the commentary you mentioned the minimum capital required to launch some of the new growth opportunities like e-commerce. I'm curious as to with that and the continued build-out of the technology platform, wondering if there are any other areas of higher capital that are expected over the next few years or whether we should expect the company to be able to balance these investments with its growth and continue to grow cash flows and adjusted net income consistently from current levels?
In terms of the new initiative of the e-commerce, I think for the capital investment and also some -- and also maybe the cash need of the business. I don't -- I think first, all of the new initiatives are based on our current key capability including our accumulated operating expenses in the online operating cost, live streaming sales process and also the technology base we have built for our current platform. And also, we can use and leverage the current experiences and systems to do the live streaming because we currently sell the online courses and serve the customers through the whole online process very smoothly and gaining a very effective results.
And based on this infrastructure, we can leverage all of the resources to do our live e-commerce business. So this has also proved that for the -- because you see the August number, it proved a preliminary success. In terms of the future development, I think when they do the e-commerce, they may purchase some stocks, but for the Chinese liquor, the stock turnover is very fast. And also, we collect cash -- because our customers is individuals, we collect cash very quickly. And also, I think the -- overall speaking, the cash flow -- the operating cash flow it's not a big problem. And we also anticipate maybe a very similar cash pattern -- cash generating pattern as that of our current business.
In terms of the technology investment, I think based on our last premium system, which we have developed by ourselves several years ago and improved continuously. And in this year, it's provided us a very solid base to do the live e-commerce business. There may be some slight improvement in terms of the specific business needs and systems to implement, which do not need a huge capital investment to the technology. So, in sum, I think, first, we can leverage our current experiences, systems and also the technology.
And second, we see the live streaming e-commerce business, its business model is very similar to that we're currently doing for the online courses selling business, we sell the courses and also we sell goods, the Chinese liquor through live streaming business model, which is very similar.
And also, the last point is that all of the -- both the online courses and online learning business through live streaming and also the online e-commerce live streaming business has still generated maybe a very similar financial results in the business model. I think this is my answer. I think that may help you understand the business.
And the next question comes from Howard Halpern with Taglich Brothers.
Congratulations on the quarter, guys. If you could dive maybe a little bit more into the new e-commerce platform. Could you describe, I guess, maybe the mechanics of it? Are you -- are you just connecting merchants with your customer base and collecting a fee? Or is there more to it than that?
Yes. I think -- thanks for your question. Also in relation to our new initiatives for the live streaming, our -- basically, our current business model is to acquire our learners through live streaming free courses and then some of the learners they convert to our paid learners. And basically, the business model for the live streaming e-commerce is very similar to that. We launch our live streaming room online to advertise and to attract the traffic to our live streaming room and they sell the Chinese liquor to the audience.
And we have we have several business models. One is we purchased the Chinese liquor from the supplier and then we will leverage our live streaming capability and our user base to sell that kind of product, the Chinese liquor to the customers. The customer -- some of the customers is our current user and maybe some customers who have learned our courses and who have learned our free courses. And a majority of that may be from the new traffic, the new audience and also the new demographic from the -- from each source of the -- especially the short video social platform such as Douyin and Kuaishou.
And also, we have some other business model, maybe we will act as -- because of our capability for the live streaming, we will act as an agent to have some brands to sell their products initially. Maybe I think in the long run, we can -- because of our -- the capability to sell, especially sell the Chinese liquor through live streaming is very important. I think our capability can leverage all of our resources to secure the best goods, the best Chinese liquor, the supply chain to our current and future customer base.
Okay. That was very helpful. One final question I have is, what do you envision the opportunity is to grow international beyond China? And how would that process unfold?
Yes. Thank you. That's a good question. We have placed our strategy to seek opportunities both domestically and overseas. And we've been keeping a close eye on the growth of the international learning market. For context, a report by Global Market Insight estimated the global e-learning market to be valued at a very large scale. So the Asia -- especially the Asia Pacific market alone would value that upwards of USD 60 billion market size, I remember. With increasing penetration of the internet and mobile learning, more people than ever are turning to e-learning platform to learn new skills, foster personnel growth and improve their quality of life.
So as part of our strategic planning, we have been continuously assessing our capabilities for international expansion. As you know, our business is focused on the domestic market currently. And we build up a solid foundation based on 3 key factors. I think the first is our solid technology to support our operations. Over the past few years, our online learning platform has evolved and is now highly stable and scalable. As such, we are well equipped to adapt to differences in demand that we could experience in different regions.
Secondly, we have built up a strong business network and a number of comprehensive partnerships over the past few years. This gives us access to valuable market resources and insights, which help keep us at forefront of the industry.
And third, we have a healthy balance sheet, strong cash reserves and we have been generating operating cash flow -- generating positive operating cash flow. These factors provide us with a strong foundation to begin exploring opportunities in the international market.
But meanwhile, we have proven in the past that we are willing to -- we are willing and able to effectively address our operating strategies and our product and services offering. Our approach is open-minded and we are always seeking out our users' feedback to better address their needs. This adaptability has been key to our success, whether we are talking about the current brand QiNiu, Jiangzhen and Qianchi. As we set our sights on going global, we will continue to keep an open mind and benefit from external feedback.
By doing so, we can understand what potential users want and tailor our course offerings to effectively meet their needs.
And lastly, I want to point out that we will stick to our business philosophy and operation methodology to try to be open minded and to try each kind of opportunity on effective and efficiently maybe starting from very small scale after which prove that business model is successful, we will enlarge and expand this business overseas very quickly within the future.
Keep up the great work, guys.
And the next question comes from Hunter Diamond with Diamond Equity Research.
Firstly, congratulations on the results. So could you provide further insights into the adult financial learning segment? We've observed no worthy recovery in this area since the start of the fiscal year. So if you could give more details on the performance projections for this segment going forward? And additionally, how do you perceive the competitive landscape evolving in this market?
Yes. Thank you. I think I just mentioned, financial literacy courses are just one category of the courses that one SKU in our total interested courses package. We will treat all of our SKU interested courses as a whole to grow the revenue, which is still based our methodology that of -- and also our key capabilities that we are a very capable company, which can develop -- which can see the market trends, customer needs, customer demand and create a tailor-made, very interesting, inclusive and accessible content for our customers, which can be proved that by our historical track record, for example, we have launched Jiangzhen and Qianchi step by step using the same methodology to see the market trends and customer needs to promote the short video production courses and et cetera.
So as a whole, I think even though some fluctuation of the revenue for our financial literacy courses currently, we are still very optimistic in terms of the interested course revenue growth in the future because we have the key capability to see the market trends, the business opportunity. And, we have a dedicated content creation team to create the content to launch the courses which all generate very positive net result in the history. So I think in the future, even though the financial literacy courses may decrease maybe in the short term, I think as a whole of the revenue, all of the categories of our interested courses will growth.
Great. And then just one more question and I'll open the line for other analysts. The recent presentation alluded to inorganic growth and geographic diversification. And given the liquidity and cash investments on your balance sheet, how do you see acquisitions fitting into your investment orientation?
Yes, may I repeat your question. You mean the potential acquisition of new businesses?
Correct.
Yes. Yes. I think even though we have generated positive operating cash flow and also in the latest -- fourth quarter, we generated a huge amount of net profit, both adjusted and non-adjusted net profit. I think even though we have a very solid financial position and enough financial resources, we still stick to our discipline and business methodology to start from a small -- on a small scale to prove it -- to prove the business model. And only after that, we will grow the business, maybe -- even though -- maybe by ourselves or by acquisition of companies or some assets open to every -- each opportunity -- business opportunity. Only, if that -- we prove it is a successful business model.
And the next question comes from Pat McCann of NOBLE Capital Markets.
Congrats on the continued growth. I have two questions. The first one has to do with the online learning side of the business. When it comes to the other personal learning courses, do you have any in the pipeline? Are you looking to expand the course offerings here in the short term in fiscal 2024?
Yes, actually, I think we have a methodology to do the research -- market research and to collect customer feedback in terms of our content development and also the course development. Basically, we have a pool to run several courses to test the market and also to take feedback from our customers. But only when we prove that the customer likes it and also the net result of the ROI is okay. We will expand the scale of that kind of courses.
So I think -- actually, we definitely we have a pipeline and we have a solid pool to prepare for the future growth and future revenue growth. And I think this is our capability and also it has been proved in the past 4 years, we can -- and we have -- we are able to launch new courses, which caters to the customers' needs and also can develop our own business position and also our own strength in the market.
So in the sum, I think we have -- we definitely have the pool for our pipeline and also we will launch such kind of courses in due course when we think it is profitable.
Okay. And then on the e-commerce side of the business, is Chinese liquor, that's currently obviously the target market, are you looking to -- is that something that you want to kind of stay laser-focused on that product offering for the time being? Or is that sort of a launchpad to get into other products to market through your e-commerce business.
Yes. I think for our business methodology, the -- I think the focus is very important. So even though we have a very solid infrastructure in terms of the live streaming technology and business model. We should focus on one thing, especially after the initial stage of the e-commerce development. So currently, I think this strategy proved to be successful and because we can focus this product and focus on the whole streamline of the business operation and the business flow, leveraging our current resources only then the -- but actually, we are trying some small scale of our kinds of SKUs through the last streaming.
But in the current state, focus is Chinese liquor, which has proved successful initially at this stage. I think maybe in the future, we have the capability and we have the platform to enlarge our SKUs and also the product mix. But currently, I think in the short term, we will focus on this SKU and this new initiative, when we prove that it is a big success to launch and we will expand.
Thank you. And as there are no further questions, I would like to turn the conference back over to management for closing remarks.
Thank you again for joining our call today. If you have any further questions, please free to contact us or submit a request through our IR website. We look forward to speaking with everyone in our next call. Have a good day.
Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.