Allegro.eu SA

WSE:ALE

Earnings Call Transcript 2021-Q3

[Michal Kuzawinski, executive]

Good morning, and welcome again this time to discuss Allegro financial results for the third quarter 2021. Let me introduce our host. We have with us today, as usual, the CEO of Allegro, Francois Nuyts.

[François Nuyts, executive]

Good morning, afternoon.

[Michal Kuzawinski, executive]

And our CFO, Jon Eastick.

[Jonathan Eastick, executive]

Good morning.

[Michal Kuzawinski, executive]

And my name is Michal Kuzawinski, and I'm Head of Investor Relations.

Before we begin, you can download a copy of the presentation discussed today from our IR website. This is Allegro.eu. Please click on investors. And then you should see a link to IR presentation on the top left corner of your screen. Please download the slides and read carefully the disclaimer on Slide 2, in particular, the comments on forward-looking statements, which are contained in today's presentation.

We will have a Q&A session after the main part of the presentation, which is an approximately half an hour.

Just a final comment. We are being recorded today, and a replay of this presentation will be available on our IR website. And with that, we can start. Francois over to you.

[François Nuyts, executive]

Thanks, Michal. Hello, good morning. We met many of you last Friday, where we covered the Mall acquisition and how it enables our forward-looking international growth and also multiply some of the initiatives we're doing across the region. Today, obviously, we're going to talk about Q3 results, as always, joined by Jon.

And we're always will focus on both the inputs. So what are we doing to improve the long-term health of our business and how it delights consumers and merchants alike? And then we'll also talk about the financial outputs of the business.

So with that further ado, let's start projecting the slides. Thanks.

So in terms of agenda, as usual, I'll cover the highlights. Jon will cover the financial results. I'll summarize, and then Michal will help us through the -- facilitating the Q&A.

Moving on to the next slide. So in Q3, as expected, we saw acceleration of GMV to about 20%. That's due to consumer -- existing consumers shopping more reaching 3,000. And then also more consumers joined in the platform. It was a bit more of a -- what I would love to call a usual quarter or what we hope will be a usual quarter in a sense that there was limited lapping of COVID last year at that period and limited lockdown this year.

You'll see, and Jon will cover, we're on track both to meet expectation and we're maintaining the guidance that we raised in Q1. And last but not least, as announced on Friday, we announced the agreement to purchase Mall Group and WE|DO, which nearly doubles our headroom for further growth. And we expect this to complete sometime in the first half of the year.

So here, I won't cover this is more for you to have all the core financial metrics in one place. But moving to the core inputs of our business. So this is the road map. It stays the same. As usual, we'll cover a few of those components, notably retail basics, delivery experience and smart in terms of the core base for the business and the accelerator, which is the loyalty program SMART! and Allegro Pay International, which are obviously additional initiatives on top of the existing business and some progress in not only what we do in terms of ESG, but also how it's received by the wider market.

So let's start with retail basics. And again, very simply, our business is about the choice we provide to consumers. We call this selection. How they can come and always have a competitive price, and how we make the overall shopping experience convenience.

In terms of selection, we continue to see a very fast ramp-up of the number of offers we offer consumers. And this is mostly as we improve -- continuously to improve the tools for merchants. And as we continue to invite, for lack of a better word, new top brands to join the platform. So as you see, we reached over 250 million offers on Allegro and we signed some new brands.

So Dada, for example, is the leading baby care brand for one -- for the leading food retailer, Biedronka, in country. Duka is a well-known Swedish kitchenware brand. And Sprandi is the private brand of the leading shoe/online retailer, CCC, in countries. So all great progress across, and we expect to see continued growth normally in a number of offers but also the brands that keep on joining the platform.

In terms of price leadership, here you may recall, we launched Allegro Ceny, which is our tool to share and incentivize sellers to extend the lowest price to consumer. Since we launched Allegro Ceny, we see a massive uptick of the number of merchants that join the program. You see quarter-on-quarter, a sixfold increase in Q3.

What this means is our ability to extend the lowest price on the wider selection and keeps on increasing and also to do it at better financial both for us and the merchant keeps on increasing, and that's massively important.

On improving convenience, we've kept on automating the refund process, both on the consumer and the merchant side. It's a great driver of both consumer and merchant experience. You see continued progress of Allegro Family. If you recall, Allegro Family is this program where our consumers can easily -- family members, extended family members can easily join different benefits, SMART! for sure, also Allegro Pay and benefit as a family and also shop as a family. But it means if you don't have a credit card, you're a younger member of the family, you can start the transaction and the family member that owns the account completes that transaction, for example.

In terms of -- sorry selection, pricing and then delivery. In terms of delivery, we continue to sequentially improve how fast and reliably we do delivery. First, using our unique third-party AI-based model, notably through incentives to merchants. So here you see the progress 8 percentage points year-on-year in Q3, mostly driven by the fast delivery subsidy program for merchants. We see continued increased usage of that program, and it's exactly doing what it was intended to do.

As the coverage of fast delivery increase, we improved the visibility to consumers through search results -- search filters and results. And as mentioned in previous quarters, we're also, at the same time, then we're improving our third-party AI base. We continue to do targeted acquisitions and developments that enable us to keep on improving delivery speed over time.

And here, you have a few examples on this slide. The first one is the acquisition of a rather small same-day delivery company called XPC on 11th of October. The second one is the progress on One Fulfillment. One Fulfillment, which is our own fulfillment for merchants. At the moment, it's in the stage that we call commercial pilots where we invited a select number of merchants on 13th of September, and where we're rolling up and scaling up the quantities to make sure that all the processes work to further launch and further extend the base in early January. And here, all things are on track, and we'll see more progress in the early part of the year.

Last but not least, on Last Mile, One Box, our unique green APM network. So that's been a bit of a time in the making, but we're super static that we launched the first green APMs, just -- what is it? A week ago.

[Jonathan Eastick, executive]

A week ago.

[François Nuyts, executive]

So 600 green APMs from the 3rd of November. As we discussed multiple times, we plan to have at least 3,000 by the end of next year. The feedback from consumers is amazing, but also from local authority in terms of how contributive they are to the environment, both visually and ecologically, is quite a high point in getting them accepted even more further.

Moving to SMART!. So SMART! is really the fuel on our overall core marketplace engine. Meaning if we have leading selection, best price, great convenience, great delivery, SMART! enables consumers to shop more and merchants to sell more. So we continue to improve SMART! in a number of different ways.

First, the number of consumers to participate in SMART! keeps on growing, not only through the regular SMART! program, but also the SMART! na Start campaign, which allows slightly lower engaged consumers to benefit from SMART! and start using it. We had a record campaign in terms of SMART! week, both in terms of the number of offers we extended, but also in the number of prices reduction we were able to extend.

Then we also do a longer-term improvement to SMART!. The one that you probably will have noticed is how we aligned the MOV across locker and courier. That experience of having 2 MOV was always a bit of a consumer defect. You only knew at the end of the shopping journey, whether you had a courier delivery available for you. So we did 2 things.

We reach almost parity in the coverage of between lockers and courier, and we made the MOV the same. And what we can see here is an uptick in SMART! and in spending as we see consumers that do not have easy access to locker engaging more with us, which is exactly the idea of reducing that initial, I would call it, again, a consumer defect.

Moving to Allegro Pay. And here at a high level, and Jon will cover questions. But we can see since we launched the -- what I'd like to call that kind of the universality of the Allegro Pay program, meaning we made Allegro Pay available for all consumers in Poland. But you see a massive uptake in the loans being issued which leads us to increase our guidance by about 50%.

We're sharing for the first time the incrementality of -- from our AB test results. We see that a little bit similar at the -- when we did that analysis for SMART!, we see a massive uptick from consumers start using Allegro Pay in the terms to do at least 35% higher spend.

The other thing, moving to Slide 11. The team secured external financing for Allegro Pay, which allows us to grow -- continue to grow Allegro Pay ahead of plan, so to speak.

Now let's recap briefly because we spent quite a bit of time together on Friday, the strategic rationale for the great acquisition we did of Mall and WE|DO. So the whole reason we're doing this is it gives us access to markets that are -- geographies that are nearby that accounts for doubling our headroom for growth. It's over PLN 1 trillion combined retail.

One of the core -- well, there are a couple of core parts of the projects, but the first one is when you look at those geographies, it's a scattered competitive landscape. What it means in practical terms is the type of experience you expect from Allegro, for example, where you only need to go to Allegro, you don't need to shop around to find everything you're looking for, to find it at the lowest price, to find it with great delivery, convenience, SMART!, it really doesn't exist across the regions. So by creating that one-stop shop, great value proposition, we know we're going to be able to massively uptake the consumer engagements.

The main way of doing this is by what we call turbocharging Mall 3P marketplace. Mall has started that evolution. But the base of sellers they have, the base of selection, is massively different. So by adding all that selection, we know invariably from Poland, but also other countries that consumers become more engaged, not only the existing consumers but also more consumers as a one-stop shop.

We also acquired both The Mall and WE|DO critical assets, Last Mile infrastructure, cross-border infrastructure that were already on our road map at Allegro, and we obviously get the know-how of those teams. The 2 last points, it's around -- so the first one is around team. We spent a lot of time over the last quarters interacting at a quite in-depth level between the 2 teams. And it's very important that it's quite evident that those 2 teams are very aligned.

Sometimes they differ a little bit how they run the business, but in terms of how they look at it, it's very aligned. So it's going to make that merger of the culture much easier. And it's something we're really working on.

Last, obviously, this is not only about the core marketplace, it's also about taking all the other investments and improvements we're doing across, whether it's Allegro Pay, whether it's ad tech versus our mobile app and making sure that those investments scale across the region and provide a unique shopping experience to the consumers.

So here, I'm not going to cover the transaction highlights. Jon covered them on Friday, but we wanted to have them here to have one point for you to have all the information. And similarly, with the midterm ambitions, which we covered Friday, but obviously, very happy to take any question or Jon, when we go to the Q&A.

So wrapping up before I hand over the mic to Jon. In terms of ESG, what is great is not only the work the team is doing on a recurring basis, but also the recognition that we're getting from time to time. And Q3 was a little bit unique in both perspective. But in summary, to look at the output of it, it was great to see the reflection in the MSCI ESG rating that moved from BB to A. Again, as a recognition of the multiple streams of work the team are in a commitment we're making to being a very ethically responsible company across everything that we do.

Jon, the floor is yours.

[Jonathan Eastick, executive]

Thank you very much, Francois, and good morning again, everybody. Great to be with you, and I'm going to now take you through the financial results for the third quarter 2021.

As usual, I'll begin with active buyers and with spend per active buyer. We made a good start again to this year -- to this quarter. Our sequential growth resumed again in terms of active buyers, 13.3 million active buyers, at the end of the third quarter, a 5.6% growth on a 12-month basis.

I think what's much more exciting is passing the PLN 3,000 of annual spend benchmark for spend per active buyer. It moved on sequentially 3.3% Q2 to Q3 and 24.5% growth on an annualized basis. Now that growth in spend is obviously what's really underpinning our growth at the moment, and it's really coming from 3 different main sources. One is the tremendous expansion in the number of customers signed up to the SMART! program, who then are much more engaged, spend much more year-to-year.

Francois was also mentioning the Allegro Pay incrementality. Allegro Pay is becoming more and more material in our GMV, bringing about 35% incrementality in GMV. And then finally, the -- this mysterious stickiness factor coming from the pandemic that we all lived through last year. Our buyers, obviously, have learned new behaviors to rely even more on e-commerce than they did previously before the pandemic. And we're seeing the stickiness of that behavior is really starting to come through in the numbers.

So that's the purchasing per active buyer. Putting the 2 -- those 2 metrics together, we get to our GMV results. In the third quarter, we had PLN 9.9 billion of GMV. That's a significant acceleration in growth to 19.9%. You'll probably recall from the previous discussion when we met, I think it was right back at the early August to discuss the half year. We were growing mid-teens. And in July, that growth sequentially improved during the rest of the quarter, and we moved on to 19.9% for the quarter in total.

It's worth remembering that in terms of COVID disruption, Q3 is the first quarter we've met where, in fact, there was no lockdown disruption in the prior year in the summertime. And again, no disruption, thankfully, this year. So the numbers are pretty much an apples-to-apples comparison.

The CAGR for the 2-year period, therefore, is interesting at 34% from 2019 through 2021. That means that the business is about 80% bigger than it was back in 2019, which is really a tremendous performance. In terms of last 12 months GMV, we moved on by 30.9% year-on-year, and it stands now at PLN 40.8 billion.

Moving on to look at revenues. So the growth on the revenue line comparing to the 20% GMV growth is at 32.9% for the third quarter. That's partly coming from the higher take rates and also, obviously, from a strong contribution from advertising, which I'll cover on the next slide.

I did take a COVID test yesterday, I would like to point out for everybody. So -- and this is not COVID-related, but I do have a bit of a cough.

Okay. So yes, looking at the revenue bridge, 31% growth in the marketplace revenue and 39.7% growth in advertising are the main underpinnings of the growth in revenue in the third quarter.

As we were flagging ever since the beginning of the year, the take rate is ticking down slightly quarter-to-quarter. We're investing more in terms of commercial rebates. And as Francois was mentioning, in our Allegro Ceny program, to share take rate with merchants who are prepared to provide the best possible prices on the platform. Those factors result in the take rate ticking down by 17 basis points quarter-on-quarter.

Year-on-year, we're still well ahead, 0.9% up on a year ago. In the third quarter, we lapsed the increase that we made a year ago relating to success fees on delivery -- on the delivery charges that our merchants levy on customers when they're non-SMART! customers. We started collecting a success fee on that in July of last year. We now lapped that. So that's one of the reasons why the year-on-year growth has compressed slightly.

Okay. So moving on to costs, and starting with cost of sales. As usual, the main interest point here is around cost of delivery. Quarter-on-quarter, it was steady at 22% of revenue. But behind that, there is actually a 60% increase in cost of delivery. And what's that coming from? Obviously, that's coming from the dramatic growth in our SMART! subscriber base. The additional transactions that, that drives amongst those subscribers.

And finally, as Francois was mentioning, we made sequential improvements over the last 12 months in the courier component of our SMART! offering, which results overall in a 10.8 percentage point increase in courier within the mix of delivery, okay? So more courier relative to lockers and to pick up points.

Obviously, courier delivery costs somewhat more per unit than those other 2 ways of delivery. And that, therefore, translates into another cost driver. But at the same time, it makes the whole user experience of SMART! that much more compelling.

When it comes to retail sales, using that lever a little bit stronger than last year to also help with pricing and selection to make the overall experience on the platform as fantastic as possible. So there's a slightly higher cost of cost of goods sold.

Okay. Then moving on to SG&A expenses. We continue to ramp up the team that we have, in particular, around technology and around our ability to develop and innovate within the business. As I mentioned, we're now 80% bigger than we were 2 years ago.

To keep growing this machine at this 20% plus growth rate, we need to be able to innovate across multiple levers across the whole business in order to have enough ammunition and enough power to keep growing this business as strongly as we target.

So there is some increase in our team size, 32% -- 33% more employees. We're also spending in line with revenue growth on our marketing expenses. Continue to get great ROIs on our expenditure in that area.

So in terms of EBITDA, we had 15.5% growth in EBITDA in the third quarter, PLN 472 million, and we're at 28.8% growth on a year-to-date basis, just under PLN 1.6 billion of adjusted EBITDA for the 9 months. When it comes to adjustments below EBITDA, there's a couple of things to call out here. In comparison to the situation a year ago, obviously, last year, we were just in the middle of doing the IPO. So there were a lot of one-off expenses going through EBITDA adjustments and lower down in the P&L related to the IPO.

This year, I think the most interesting thing to call out there is point #1, where you see PLN 18.6 million of restructuring and development costs. I can now say after last Friday's call, that this was mainly due diligence and management consulting and support around the Mall transaction, where we worked very hard and meticulously on looking at that asset before we finally made the decision to make that acquisition. So we've got -- we've done a lot of preparation for the integration, which is to come after the transaction closes next year.

The other thing worth mentioning here is that because our interest rates that we're paying or the interest margin we're paying on our financing stepped down 50 basis points from the midyear, there is a noncash adjustment to the carrying value of our debt. which puts up about PLN 100 million noncash financial -- positive financial adjustment into the P&L in the third quarter in the financial expenses line.

Okay. So then moving on to capital investment. Francois was talking about the milestones that we've met over the last few weeks, in particular, the APM launch, for example. That project is scaling really well. We're also investing in the automation phase on the fulfillment project. So as a result, you see 120% growth in our capital investment compared to the third quarter a year ago. We spent just over PLN 100 million in the third quarter. We're on course to keep ramping that expenditure, keep ramping those projects and spending the full guidance for the full 2021.

Moving on to leverage. It was another quarter of excellent progress. We took the leverage down another 0.2 points to 1.8x debt-to-EBITDA. As I already mentioned, that, in itself, resulted in lower margin, 50 basis points lower than previously. Francois mentioned that we signed a great deal with AION to provide us with off-balance sheet financing of up to PLN 2 billion over the next 2 years that will provide us the fuel that we need to really scale Allegro Pay without doing any negative impact on our leverage. So that's a really exciting project.

When it comes to the Mall acquisition, we need to raise approximately EUR 200 million in new financing in order to have the funding ready for the middle of next year when the transaction should close. And we're considering primarily doing -- starting a PLN bond program as the way to raise that financing.

Okay. So that brings me to my final slide before handing back to Francois, which is our expectations for 2021 and a short update on the outlook for 2022. When it comes to 2021, we're maintaining our guidance across the board. The year is very much playing out in accordance with our original expectations.

If we start from GMV, the fourth quarter, I'd like to remind everybody, there were lockdowns this time last year in November, in particular. The shopping centers were actually closed due to COVID. And that's going to result in a slightly lower or somewhat lower percentage growth rate than we saw during the third quarter.

But having said that, the absolute level of growth is looking very promising. We were doing mid-teens growth in October, and we're starting to see that Christmas or pre-Christmas ramp-up in sales coming through very strongly. So everything is looking good for a really good Christmas season.

When it comes to revenue, that take down in take rate that happens during the fourth quarter because merchants to invest less in promotional in promoting their offers because demand is simply so strong anyway, is likely to come to fruition. That's what we see almost every year, and we expect that to be in the numbers again this year.

In addition, as we mentioned earlier, we just took the MOV on our courier for SMART! from PLN 80 down to PLN 40, which makes the offer that much more compelling for consumers. But currently, we're not charging for cofinancing for courier on those -- that extra group of courier transactions, and that's going to create a small additional headwind on the total take rate that we see in the fourth quarter.

When it comes to adjusted EBITDA, continued growth on SMART! penetration, more courier in the mix as we've been talking about and growing that team to be well positioned to continue to grow the business in 2022. All those expenditures will be visible in the adjusted EBITDA.

When it comes to the outlook for 2022, we're in the middle of our planning phase, our annual planning round at the moment. So we don't have anything concrete to share with you. We will share expectations when we meet again for the fourth quarter when we finish the planning.

The key points here are that we're really prioritizing our GMV growth and prioritizing getting traction in these great investments that we've been making around Allegro Pay, getting started in APMs, getting started in fulfillment and obviously also in the retail basics to drive our GMV growth for next year.

We do think that this will probably result in some softening of our margin compared to the very high levels that we've seen in 2021, but it does remain the case that our -- one of our key planning objectives is to keep our EBITDA moving up sequentially year-to-year. So with those comments from my side, I'm going to hand it back to Francois.

[François Nuyts, executive]

Thanks, Jon. So let's move to summarize. So Q3 accelerated to 20% pretty much as planned. This was driven by higher engagement from existing consumers and the growth of active buyers returning quarter-on-quarter. The Allegro Pay rollout is working incredibly well, both in terms of the incrementality per user and also by the sign-up of new user to Allegro Pay, which is a great future growth lever, notably now that we have arranged the financing.

In terms of more retail basic levers, we continue to see massive uptick in the usage by merchants of the program we put at their disposition to improve delivery times on this great asset-light third-party model. Whilst at the same time, we see continued progress and some milestones being achieved notably on lockers on our own fulfillment for merchant solution.

As Jon mentioned, we're maintaining our guidance. We know that competition has done some activities, but we see limited impact from that so far. But obviously, it's always good to be humble. So we keep on investing and having no less than the leading value proposition both for consumers and for the merchant, and we'll continue to do so.

We -- one of the enabler for that is how we continue to invest in our people, both in terms of quality and development of the existing team, which continues to ramp up very well. And executing on our ambitious tech development road map and headcount development, notably in that domain.

Last but not least, the addition of Mall to the group, hopefully, to come early in 2022, will not only double our headroom, but also give opportunity to develop a lot of the progress and projects we did, not only on core retail basics, but across a much wider consumer base. So all in, very excited about this quarter and what comes next.

But without further ado, Michal, why don't you help us facilitate the Q&A.

[Michal Kuzawinski, executive]

Yes. Thank you, Francois, and thank you for asking your questions. We received quite a few of them already. [Operator Instructions]

Let's kick off with questions from Elena Jouronova from JPMorgan. First, what percent of GMV can be covered by AION fulfillment services? And when the fulfillment -- when is the fulfillment capacity they're going to reach the plant size in Allegro?

[François Nuyts, executive]

I'll start, and then, Jon, maybe you help with some of the specifics. Maybe here in terms of business model, it's important to remind everybody we keep to intend our business model to remain different. What I mean by that is our business model, that asset-light third-party fulfillment scales better than anything. Meaning, we're able to do fast, predictable delivery -- sorry, Jon had a bit of a voicing stiction over the last couple of days and it's amazing he's with us.

But okay. So let me continue. So we intend to have still most of our delivery done through that model because it's uniquely help us do it on a much wider selection and that would be possible with, let's say, with a hard asset model. Now as we talked in the past, there are some gaps where we expect hard assets to play a part, whether it's international inventory, whether it's merchants that just do not want to build on the capabilities and want to give us this inventory to do that service for them. So we expect indeed a percentage to go that way, but nowhere close to the mix that you're expecting -- that you normally see on a 1P plus 3P model. In terms of reaching -- I'm just looking to Jon to see to what numbers we've guided to.

[Jonathan Eastick, executive]

Yes. I mean in the medium term, once we've rolled out all the fulfillment centers that we have in the projection, then we're expecting to land somewhere in the region of 25% or so of GMV going through fulfillment centers.

[François Nuyts, executive]

Right. But I'll remind this is not the target for us. The target for us is how fast we deliver, how reliably and we'll keep on improving our third-party AI model to cover the overwhelming majority. And then obviously, we'll use hard assets to cover the gaps as we have so far.

[Michal Kuzawinski, executive]

Elena is also asking about Allegro Pay, the scalability progress since the full launch and the expected monetization profile of Allegro Pay?

[François Nuyts, executive]

So I'll -- similar. So the scale you see in the achievement in Q3 where we raised our expectation by 50%. Really, the key game changer here is the change in eligibility for consumers. And we're really at the beginning of this, right? We made that possible only a few -- a couple of months ago, if at all. And now there is a number of communication and even word of mouth that is happening here.

The NPS, obviously, that we continue to see, which is even better than the world-class NPS of the platform is incredibly reassuring. And ultimately, that also get translated in the data that we shared, which is the incrementality in terms of consumer shopping behavior.

[Jonathan Eastick, executive]

Yes. Maybe I'll pick up on the monetization aspect of the question. So Allegro Pay is doing extremely well. When it comes to monetization, there's really 2 models there. The customers can take the BNPL product or they can choose an installment product. When they go for the BNPL, what that means is that we get a very fast rotating loan book that rotates 6 times a year, something like this, on average.

With that 35% incrementality that we're seeing, that translates into over 100% incrementality. Once you multiply that loan those 6 times, that then produces obviously a hell of a lot more commission than we would have generated without Allegro Pay. So that's just fantastic.

And then the second group is around the installment loans where we're getting good traction charging this 8% interest rate. And there, obviously, the money turns over less frequently. But on a weighted average basis, the incrementality is around 35%.

Generally speaking, where customers are prepared to pay interest, it tends to be even higher. Yes, so we haven't actually split between the 2 in terms of incrementality, but suffice to say, incrementality is even higher on GMV for the installment loans and we're earning 8% interest on top. So in terms of monetization, the project is really in line with our expectations, if not exceeding them. And the other aspect, obviously, is NPS. They continue to be under control. It was another quarter of around 2% NPS results.

[Michal Kuzawinski, executive]

Next one from Elena. Where do you feel the Allegro platform lags on selection and price versus Amazon offering in Poland?

[François Nuyts, executive]

We benchmark not only international competitors, but also local competitors. When it comes to selection, suffice to say, we're in Poland all through, what I'd like to call selection authoritative, meaning there are very few things consumers do not find on Allegro at 250 million offers, and we keep on improving this sequentially. So we don't see any gap even so there is always some delta between brands. But again, in Poland, we're largely authoritative.

On pricing, and again, I'll talk more around total competitive base rather than single out. We see that normally we're very competitive. This is due to a couple of things we covered over the last quarters and since IPO. First, the prices in Poland are uniquely competitive, which indeed helps us and helps the merchant base.

We see also that the way we pay merchants, so we pay merchants immediately, allows for a much wider merchant base, including some of the very well-known retailers that are known for those unique selection, unique price points to be present on Allegro, and that's massively helpful to our own competitiveness.

And then unlike other platforms that have traditionally a 1P plus 3P, the way we collect and share the data and the incentives with our merchant base allows us to be competitive, not only on the sliver of front catalog but on a much, much longer tell and the progress here of Allegro Ceny, that I mentioned only a few minutes ago, where we see that right. That's one of the key KPI where we see more and more merchants, 6x only quarter-on-quarter, more merchants participating in this program is really the testament to the success of that approach, which is better for consumers because it extends across both the front and the back of the catalog and it's much better economically for the merchants and ourselves.

[Michal Kuzawinski, executive]

And the final one for Elena. Do you believe that the competitive landscape in Poland requires higher margin investments to drive GMV growth in line with your midterm expectations?

[François Nuyts, executive]

I mean Jon covered, we don't see -- I mean we see some activities, obviously, from competitors, both local and international competitors. So far, we see limited impact from those moves. And quite humbly we benchmark across quite an extensive array of competitor on a number of, let's say, funnel metrics across, and we see very limited impact so far.

Now as both Jon and I mentioned, we keep on looking at ways we can improve the life and the shopping experience of consumers and sellers. And we do have a number of initiatives that we're in the process of quantifying part of our Q4 financial planning to make sure we still have, what do you say, we win the hearts and mind of both consumers and merchants. It's already the case, but consumers are woefully demanding. So that's something you need to be continuously deserve.

[Michal Kuzawinski, executive]

We have questions from Michael Potyra from UBS. Can you please give more color on the recent trading. Do you see any changes to the competitive environment?

[Jonathan Eastick, executive]

Kind of recent trial. Okay. Yes. So I think we said in our management report that in October, trading was in the mid-teens. Bearing in mind that after everyone went back to school last year, September, October time frame, the COVID cases started to dramatically accelerate. And there was, let's say, a lot of COVID-related buying online that then culminated in November with an actual lockdown. That 15% growth rate, we think, is actually pretty decent in terms of absolute GMV growth, or absolute GMV, it was a strong performance. And we're now seeing, as we come into the Christmas period, that -- or the pre-Christmas shopping period that the GMV growth week-to-week is really starting to build very nicely as is normally the case. So we're expecting a very strong Christmas season. And as I said, I mean, our GMV guidance, we're maintaining, we're very happy.

[Michal Kuzawinski, executive]

Can you please comment why price comparison revenues are declining?

[Jonathan Eastick, executive]

Yes, that's a good question. So the price comparison business is mainly driven off the amount of e-commerce searches that are going on, on the Internet, particularly on Google. And because of the very unusual situation a year ago, there actually isn't very much growth in terms of the amount of search activity that's going on year-to-year.

And that means that there's limited, therefore, potential for Ceneo to grow their business in the short run. In addition to that, Allegro itself has been using the Ceneo channel much more strongly than in the previous year. And obviously, on a consolidated view, where Allegro spends on Ceneo those transactions get eliminated in the consolidated result. And you only see the third-party component of the Ceneo price comparison revenue. So those 2 factors together really are the reason for the relatively slower growth.

[Michal Kuzawinski, executive]

Now we have a few questions from Cesar Tiron from Bank of America. Number one, can you please better help us understand your comments about margins trending down in FY '22? Where is the incremental investment that will be spent and how much will margins decrease in 2022?

[François Nuyts, executive]

So I'll start. I think the way the question is written is asked is a little bit more assertive than the comment we made. First, we're very early in our Q4 financial planning of 2022 and forward. So what we do see is indeed quite -- I mean we maintain our guidance on GMV because we see the trend ahead of us.

What we do see, it's also a number of opportunities to keep on investing to improve both consumers and merchants. Those are in the process of being valuated and forecasted, budgeted. And at this stage, it seems humble, reasonably cautious to say that, yes, we may want to do investments. That means a slight lowering of the EBITDA percentage. Again, with that in mind to keep the EBITDA absolute growing year-on-year. So it's a bit of a sequence. And as Jon said, we'll come -- when we do Q4 earnings, that's when we'll come with a more detailed plan and updated guidance.

[Jonathan Eastick, executive]

Yes. Exactly.

[Michal Kuzawinski, executive]

Question #2 has already been answered. Number three. Besides buyer financing, what steps will you take to further enhance your fintech offering in 2022?

[François Nuyts, executive]

That's an interesting one. Plenty, but I'm not sure it's -- right now, we want to talk about some of the detailed building block. Keep in mind, just by focusing on executing what the team has launched, there is massive opportunity to grow this business, right? We barely launched what I like to call the universality of the product few weeks or 1.5 months ago. So we're incredibly early stage on this.

It's true with more consumers using Allegro Pay, it gives plenty of opportunities to improve the offering to the consumer. And here we'll, indeed, keep on improving it. I don't think we've shared any time line in terms of using the same kind of skill set, technology to -- from Allegro Pay to the merchant side. But obviously, the team knowledge, skill set, data, AI are very much the same. So we're expecting that over time, obviously, this will occur.

But really, at the moment, as you saw in the output financial results, this is really a moment for the team to focus on executing so well on Allegro Pay so it gets to a very different cruising altitude than where it is now and all systems green or even better. So for them to focus on that, it seems absolutely right.

[Michal Kuzawinski, executive]

And the final question from Cesar, what do you make a AliExpress opening a logistics hub in Poland? Do you think their products can have a wide market audience in Poland?

[François Nuyts, executive]

Not for me to comment on competition. But if you look at the press article, first, the size of that fulfillment center is quite limited. It's -- in terms of ability to coverage any sizable selection. And second, as I've said in multiple prior occasion, when we're talking about, let's say, non-European, notably Chinese marketplace, some of them -- all this most recurrent benefit depended to have, is what I call VAT avoidance. How you receive a package that has not cleared VAT, which gives an unfair 20% price advantage. The more they locate inventory in country, the more that advantage is removed and fairly so. So we see those developments at very neutral -- yes. And good for the taxpayers overall.

[Michal Kuzawinski, executive]

Now Andrew Ross from Barclays. He asked a similar question about the scale of margin investment, but he's also asking for some more precise comments, if possible, on the possible range of GMV growth targeted for 2022.

[Jonathan Eastick, executive]

Yes. So I mean as we said, we're very early stage in the planning round. So it's not really possible as you can appreciate, to say anything more precise until we finish that planning process. So we will announce growth expectations, most likely when we meet to discuss the Q4 results sometime during Q1.

[Michal Kuzawinski, executive]

We received a set of questions from Miriam Adisa from Morgan Stanley. First, could you talk more about your decision to cut the price of SMART!, what impact have you seen from this? How are you thinking about the SMART! offering and how to make it more competitive other than price?

[François Nuyts, executive]

That's -- I like the question because it also allows for a clarification. We haven't cut the price of SMART!. The price of SMART! is PLN 49. It's incredibly competitive. What we did is last year, we did a promotion during Q4 of PLN 39 on the yearly and the monthly doesn't move.

Why do we do this? It's quite simple, right? Q4, across most of the countries in the world, is where you see renewed customer activity. Some of those customers have not joined SMART!. So you see us doing activities, notably in back-to-school in SMART! Week, in Black Friday and Christmas or holiday shopping season, as a great tool to get to a higher base of overall users and overall SMART! users.

So if ever, consumers needed a little bit of an extra incentive to join SMART!, that's the right season to do it. What you do see in terms of price of SMART, it's also -- whilst it's not the actual intended thing, Allegro Family is also one way for consumers to save on the cost of the SMART! program as they share SMART! across household members. And that's also very relevant for the people that are that value focused. And as you well know, Polish consumers are very, very thrifty. And Allegro, obviously, have spent a whole lot of time and effort making sure that, that thrift is well answers on Allegro.

[Michal Kuzawinski, executive]

Next one for Miriam. How are you thinking about take rates into next year given the increased competition and your investments in rebates?

[Jonathan Eastick, executive]

Well, again, we're in the planning round, and we wouldn't preannounce any changes in take rates until the appropriate moment to do so. Big picture-wise, we continue to invest a lot of money in delivery and in expansion of the SMART! program. So there may be some initiatives to come around co-financing, but there's nothing concrete to announce at this moment in time.

[Michal Kuzawinski, executive]

And the final one from Miriam. You have previously mentioned some structural reasons while local delivery is so popular in Poland. And do you think it will be the case over time? And do you expect the share of courier delivery to continue significantly?

[François Nuyts, executive]

So I mean, the underlying reasons for lockers to be very successful. Yes, I fully expect will continue. And just to name a few economically, it's obviously much more efficient to deliver to one point where you're nearly 100% sure of being able to load the product versus of hitting elusive consumer door, which may or may not be there.

Obviously, in terms of consumer convenience, being sure that your product is there versus again that elusive a time coincidence with the courier is much better. And lastly, which is absolutely right and is an increasing focus for everybody around, but also for that Allegro might contribute to the environment. Again, delivering to one single point with limited, how do you say, multiple supply chain back and forth when those packages missed the consumer is also a key reason to push.

Obviously, we'll keep on referring both to consumers and consumers will choose. But our equaling the MOV is aligned in that direction. We also know that lockers geographically don't have the same footprint. So you have arrays of consumers away from notably urban center that will continue to use more courier, not only as we make it easier for them. But overall, I think there is a shared interest both for consumers, for Allegro and overall for the environment to keep on improving the lockers offer, and it's why we focus on it.

[Michal Kuzawinski, executive]

Now we have one really announcement question left from the list of Maxim Nekrasov from Goldman Sachs. Do you plan to introduce co-financing on courier delivery?

[François Nuyts, executive]

As Jon said, there is -- this is not the time to either inform or confirm this. We're working on our financial planning. Maybe it's a time to kind of...

[Jonathan Eastick, executive]

Remind.

[François Nuyts, executive]

Remind. I was looking for a softer word, on what are the principles we use to look at those things. The first thing we're overwhelmingly a marketplace, which means we want consumers to have, how do you say, the best price, the best selection, but it's only possible if merchants have a very healthy business, right? So we always look at this in the stream of do we allow for a healthy growing business for merchants?

Now it's true that at the moment, the level of cofinancing is, what do you say, very conservative. And we look at where the sharing of those costs can be better done if it can be better done. But at this stage, we have no announcement to be made.

[Jonathan Eastick, executive]

Maybe just 1 thing to add as a point of fact when it comes to cofinancing on courier. Cofinancing in courier has actually been the case since Q2 of last year. It's just that MOV for courier in SMART! back in Q2 last year was PLN 100. Earlier this year, we brought it down to PLN 80, and we have been charging cofinancing on deliveries PLN 80 and above.

We just made this additional move a few weeks ago to bring the MOV down to PLN 40. And we haven't yet imposed any cofinancing between PLN 80 and PLN 40, okay? So that's the component where there isn't cofinancing at the moment.

[Michal Kuzawinski, executive]

Next, we have questions from Catherine O'Neill of Citi. How likely is that you will remove the minimum order value altogether on SMART!?

[François Nuyts, executive]

At this stage, no comment on this. We look at always multiple scenarios, but there is no...

[Michal Kuzawinski, executive]

And your question #2, Catherine, has already been covered. Next, let's move on to Pawel Szpigiel from mBank. What do you think of your segment share, is it falling or rising in Poland this year? And there were a number of similar questions referring to the Central Statistical Office methodology, are we lagging the market? Are we growing above? What is our take on the segment growth from that statistical data?

[François Nuyts, executive]

Thank you for the question because I do recall when I asked this question, I think, last quarter, a couple of quarters ago, the question puzzled us a little bit because we didn't connect it with the data we had either in traffic or anything else. So we broadly looked at non-real data, but a broad-based consensus of, let's say, market analysis. And we see the market growing at about 12-ish percent, if I recall...

[Jonathan Eastick, executive]

The segment.

[François Nuyts, executive]

The segment. And on why there is potentially a data gap, let's call it this way, with the office of statistical...

[Jonathan Eastick, executive]

Central Statistical Office.

[Michal Kuzawinski, executive]

Central Statistical Office.

[François Nuyts, executive]

Thank you. It's because the way the data is collected, right? It's a simple data for a reasonably small base of e-commerce. It's purely declarative. And actually, that office directly says this is not to be used as a tool to evaluate the e-commerce as a separate segment. So that's probably why you get a disconnect between those 2.

[Michal Kuzawinski, executive]

Then there is a number of questions asking about whether the midterm outlook still applies given the competitive landscape, some questions about on this context with regards to the recent actions of some specific competitors, both in terms of GMV growth outlook and EBITDA margin stability outlook in the midterm?

[François Nuyts, executive]

I think we broadly answered this. We benchmarked quite tightly a number of competitors, whether international and local. We see limited uptick from the recent activities, but we'll continue to benchmark.

Jon, you probably want to.

[Jonathan Eastick, executive]

Yes. I mean on the midterm expectations, yes, very much that remains our, let's say, medium-term planning horizon objectives, where we're aiming to drive the business to. So that means mid-20s GMV growth and in the medium term, a stable margin on GMV.

What we said in our current planning round that we're in the middle of now is that when it comes to that margin, we don't think we're going to achieve that stability next year. We would see it softening somewhat next year as we invest heavily in GMV and in the opportunities that we have because so many of these growth levers are just really well primed now for us to invest in scale. So it would be the right thing to do is to invest in those and drive the GMV growth, not worry so much about the margin in the short run.

[Michal Kuzawinski, executive]

Question from Ali Alnazer, how does Allegro Ceny work? Do you reimburse price difference?

[François Nuyts, executive]

There is a bit of a cascade that we covered, I think, in previous, but we can -- so first, unlike 1P+3P marketplace, what we tend to do is we collected similar. We collect the data, right? So we know what is the competitive price point in our country, let's call it that way. So I don't use it.

Then what we do that is unlike 1P+3P, we start sharing that data quite openly with merchant with indeed a nudge, which says if you were to align and have a competitive price, you would sell more. And it works actually in a wide array of case, and it's obviously financially accretive for the consumer, he saves money for the merchant, they sell more and for us at very efficient economics. There are some instances where obviously, this is just not quite enough, and that's when we start...

[Jonathan Eastick, executive]

Incentivizing.

[François Nuyts, executive]

Thank you. By providing take rate discount, right? Part of the program actually, which is Allegro Ceny is doing even more than that is taking price control to a large extent directly. What this does, it's not only about how do you say, being able to reduce, but also the speed of reaction, which is also important for our consumer.

And last and really last, that's when we use 1P as an ultimate resource when all those stop work. So again, you see a massive uptick because there's a clear need, obviously, from consumers. They love low price and competitive price and they love not only when they're smart to come to the platform and know that they have a competitive price. They don't need to shop around, but also you can see the massive uptick on seller usage because it really fulfills one of their need in terms of managing their price points to sell more.

[Michal Kuzawinski, executive]

Now Adnan Bilgin from Metzler. He's asking if we could share similar comments about the 2020 outlook by cohorts as we did on the occasion of the last quarter on the retention?

[Jonathan Eastick, executive]

Yes, sure. Yes. So on the retention side of things, the third quarter was very similar. So something like more than 2/3 of the active buyers that came on board a year earlier, continue to purchase, made the second purchase or more than the second purchase later in the year. So those customers were retained.

So that's very similar. I think generally, when it comes to new active buyers coming to e-commerce, we do see that there is some impact of the pandemic sucking let's say, the marginal new buyer into 2020, bringing forward that decision to become an e-commerce customer caused by the pandemic. So we're having maybe some kind of hangover from that at the moment in terms of active buyer growth. But it did start to move back to a positive trend, and we would expect that to strengthen over time as all of these pandemic effects start to go into the distance in the numbers.

[Michal Kuzawinski, executive]

And just a final question for today. A follow-up from Elena Jouronova on the 2022 outlook. Should we treat the investments in the margin to drive GMV above the current expectations?

[Jonathan Eastick, executive]

Our medium-term expectations, as I said, our target is to grow the business in the mid-20 percentage range for GMV. And as I said, the levers that we have at our disposal at the moment, such as Allegro Pay, really are worth investing in strongly. We've done all the groundwork, all the preparation, and we feel it's the right moment to invest in those initiatives, also the initiatives around delivery.

And in that way, we'll maximize our chance to hit those kind of growth rates. So next year is not a year to be focused on stabilized margin, that is a medium-term objective for us to stabilize the margin. But we're just flagging today that next year is a little bit too soon for that.

[Michal Kuzawinski, executive]

Thank you. And with that, we complete the Q&A session. Thank you for your participation today. And see you next time next year.

[François Nuyts, executive]

Thank you. A pleasure, and talk to you in -- right after Q4. Thanks very much.

[Michal Kuzawinski, executive]

Thank you very much.