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Earnings Call Analysis

Earnings Call Transcript 2024-Q3

[Operator]

Ladies and gentlemen, thank you for standing by. I am Jota, your chorus call operator. Welcome, and thank you for joining Allegro Group earnings call and live webcast to present and discuss the third quarter 2024 results. [Operator Instructions]

At this time, I would like to turn the conference over to Mr. Tomasz Pozniak, Investor Relations Director. Mr. Pozniak, you may now proceed.

[Tomasz Pozniak, executive]

Thank you, Jota, and welcome to all participants of our call. Let me introduce the presenters of today, Roy Perticucci, the CEO of Allegro, who will provide you with an overview of the third quarter business highlights; and Jon Eastick, our CFO, who will guide you through the financials and the outlook for the fourth quarter.

As usual, our results presentation is available for download from our Investors web page at allegro.eu. You may also download the slides from the link available on the webcast screen.

As a reminder, today's presentation and discussion contains forward-looking statements. Our actual results could differ materially from the expectations expressed in such statements. Please make sure you review the full disclaimer on Slide #2. Also please note this presentation and the Q&A session are being recorded and will be available for a replay on our website at allegro.eu.

And with this, I would like to hand over to our CEO. Roy, the floor is yours.

[Roy Perticucci, executive]

Thanks very much, Tomasz. It's my great pleasure to present to you again, my 10th time since joining Allegro as Chief Executive, the Q3 results for 2024.

I think, first of all, we should say that we're very pleased that our marketplace in Poland continues to grow. Our Q3 GMV related to the marketplace accelerated to 12.3% year-on-year. That's higher than in the previous quarter. And although this figure neutralizes the windfall that eBilet had due to the Dawid Podsiadlo and Taylor Swift's figures, incorporating this effect, we'd be doing 10.8%.

I've said to this group many times that Allegro outperforms retail consumption as a whole in both bad times, a good Q3 consumption overall in Poland grew by only 2.1% and September was particularly weak.

We're investing more now as promised. We've promised that to you since over the last few quarters that we'd be investing now, particularly in marketing, logistics, and people and overall in software. But we've been able to hold the margin at 6% of GMV. That's 13% better than last year. CapEx is up 91% at EUR 182 million. Net leverage, on the other hand, continues its downward trend. We're now below 1x, at 0.95x, which is actually below the medium time -- medium-term aspiration.

I've touched on our 9 priorities in many calls and no change this time. Let me dive deep on a few of the selected priorities. First of all, I'm very pleased to announce that our migration to a product-based view of the marketplace is complete in all markets. Particularly in Poland, we made the change about 4 to 6 weeks ago with minimal destruction either to advertising incomes or to customer shopping habits. We've heard very little feedback -- very little negative feedback about the change, which means now that we are operating with precisely the same marketplace model in all of the marketplaces now that we are operating with the Allegro marketplace.

Customers continue to be increasingly loyal. We introduced a number of additional frequency drivers in Q3. They include improvements to the way we build baskets, the Smart! exclusive offers and discount coupons that are used to encourage customers to try out new categories. Smart! user base continues also to expand both in Poland and outside, driven mainly by annual subscriptions, which have been recording double-digit growth.

The brand campaign for Smart! also was launched in August, emphasizing Smart! benefits, which on average have been about PLN 600 per user on an annual basis. And we've also continued to expand various other selling services that we have to merchants across all the marketplaces, particularly migrating everyone to a common set of tools for merchants called Sales Center. It's a one-stop shop for merchants to manage their business.

We continue to invest in new engines to further support the business performance. Advertising revenue continues to grow very strongly at over 30% year-on-year, well ahead of our GMV growth, strong as that is, reaching 1.7% of GMV in this quarter. And our FinTech solutions continue also to grow with an exceptionally strong loan book with less than 1% of loans written off.

We've also been testing a series of new products related to Allegro Cash and Allegro Pay card. Probably, I think the change that I'm most proud about for this last quarter has been the substantial progress that we've made in our logistics operations or delivery operations. One is our White Label Courier and Allegro Delivery services have grown by 7x in terms of volume in the last year.

Allegro Delivery, which simplifies decision-making, both for customers and for merchants. In the case of merchants, all they have to do is set up one price list for Allegro Delivery for customers, all they need to specify is their home delivery address or their favorite locker, and we take care of the rest.

Currently, we have 2 carriers working in the Allegro Delivery network. That's our own Allegro One Kurier and ORLEN, but we expect other couriers to join in future quarters that translates to over 10,000 lockers, of which only 4,000 are our own. So we are getting to, I think, an ever better coverage with the locker network by working with various other partners. Probably most strategically important, Allegro One, our own operation, is getting very close to cost parity on a cost per parcel basis in the catchment areas that they serve.

We're also very pleased that we have now expanded our marketplace model to a third country, namely Hungary. And our focus in this area is really now to convince customers to shop with this more and more often that involves various things, not only to get them to visit us more frequently, but also to reassure them on trust and basket building. And this will be critical for our expansion outside of Poland.

The Mall segment turnaround continues to move at increasing pace. We've made significant progress in reducing stock with inventory down by a full 59% year-on-year for the quarter, and that reflects the fact that we have trimmed the overall selection, focusing on a targeted range of things that customers need very quickly, being fulfilled locally. And I think that is putting us in a very good position going forward.

We've had 2 waves of staff reductions in 2024 as we start to create a single, very lean organization across the 6 countries. And very pleased also that we've been able to shut down the legacy CZC sites and close unprofitable stores, which together, again, enable us to move progressively to a common tech stack across the 6 countries.

So the software migration is continuing at pace. And I think the last thing I should mention on the next slide is on People and Culture. The Allegro Way, which we introduced internally about this time last year, is being further embedded into key HR processes. Allegro Way sort of defines the behaviors that we are looking for in managers to lead change and growth. And we expect that these changes will continue at pace. And our first ESG report has won numerous awards for our achievements in 2023.

And at this point, I will hand over to Jon.

[Jonathan Eastick, executive]

Thank you very much, Roy. Good morning, everyone. It's great to be with you today. I'm going to be taking you through a very strong set of results for Q3, particularly in Poland. And that's where I'm going to start my comments.

If you look on Slide 13, as you're familiar with, all the key KPIs for the Polish operations are laid out there. I'll start with detailed comments on the following slide. And let's start with the key KPIs that together produce our GMV growth. The third quarter has been mainly around a story of increase in spend per buyer, which you can see is up 6.8% on a year-on-year basis and 2.1% sequential improvement for Q3, similar to the rate of progress that we achieved a quarter earlier.

So that means that the average Allegro buyer is spending PLN 3,950 over a 12-month period. So that's very nearly $4,000 -- sorry, $1,000. And this progress has been achieved against a backdrop of quite a significant weakening of retail sales in the third quarter, as you heard Roy mentioned earlier. It really underlines as well Allegro's value proposition of massive selection, great pricing, and convenience. It really does drive the frequency and loyalty of the customer base to spend more and more with us. And we have solutions for just about all the shopping missions that you can imagine. When it comes to active buyers, we have 14.9 million in Q3. There's actually about a 60,000 increase over the prior quarter. Year-on-year, it's a 3.2% increase.

So putting those 2 metrics together, which include the eBilet performance, the Polish GMV is up 10.8% and landed at PLN 14.7 billion for the third quarter. On a 12-month basis, it means that our GMV has moved up to PLN 59 billion, and that's a 10.2% growth rate over the last 12 months.

The priority categories of Supermarket and Health & Beauty continue to grow much faster than the average. This quarter, it was about 2x faster than the average of the remaining categories.

It's also worth giving you an update on ASP neutralized for mix. And this is up 0.9% versus Q3 a year ago, indicating that in most categories, there is some price inflation once more. So we're more or less at the end of this trading down process, notwithstanding the relatively weak retail sales that we've been seeing.

So let me then move on to revenue. And as usual, it's moving up faster than the GMV. This quarter, 17.1% revenue growth, which is PLN 2.285 billion of revenue. I think the key point of interest is obviously the progression on the take rate. We had 0.6% higher take rate than this time last year, landing at 12.51%. And this is quite a bit lower than we were reporting for Q2, where it was about 1.2 percentage points of increase. And that's because we're lapping the final increases that we made in the prior year in the third quarter, both on the rate card and in particular, on co-financing. And therefore, we -- having lapped that, we've got a much smaller tailwind going forward from take rate.

That means that the marketplace revenue growth is coming in at 16.7%. Advertising, as you've heard, even faster than in Q2 at 30.3% growth. We've also got a very nice contribution from logistics and FinTech, which is combined together in the other category there, 45.5% growth.

So then let's move on and take a look at the adjusted EBITDA. The result came in at 13.5%, which is a little bit over the outlook that we shared with you last time, PLN 883 million for the quarter in adjusted EBITDA and the margin virtually flat at 6% of GMV, only very slightly below the Q2 level. That translates, as I said, to 13.5% growth. And if we look at the key elements of the funnel to go from Q3 last year to Q3 this year, you can see a PLN 261 million contribution from marketplace revenue. But if you look to that number for the prior quarter, including that much bigger take rate improvement, it was a PLN 95 million higher impact. And this is really the core reason why the growth rate in adjusted EBITDA has come down from the high levels that we saw in H1.

There's big positive contributions from advertising as usual and also from our other businesses or other activities, the logistics business expanding, FinTech expanding, better margins in our 1P retail in the Polish business contributing that PLN 30 million.

When it comes to drags on the EBITDA, the usual suspects, the main one being obviously cost of delivery. It's PLN 123 million higher than it was this time last year. It's 4.41% of GMV, 45 bps higher than in the prior year. That's coming from volume. You probably noticed on the earlier slide that the items sold was up about 13%. It's a higher Smart! penetration. The cost per parcel is only up 1.7% on a year-on-year basis. That's also because of the contribution from a lower share of Kurier in the parcel mix, 4.1% less.

And it's also worth recalling that we changed the accounting treatment in Q2 to show where we have proprietary parcel deliveries, meaning either Allegro One Kurier or Allegro Delivery parcels, we're showing the revenues gross and also therefore the cost of delivery is being shown gross, which means bigger numbers than in the prior quarter or in the prior quarters. So those factors together are behind that PLN 123 million of additional cost.

On the marketing side, we're spending more heavily. As Roy said, we have the money to invest. We've got the financial flexibility, and we're spending more. We're defending our position in terms of share of voice. We're also expanding and diversifying away from Google by spending more in other types of social media to bring in traffic. We've also got an extensive campaign on the mass media advertising side, supporting campaigns and underlining our different USPs for the consumers.

When it comes to SG&A, overall, 9.4% year-on-year growth, so slower than GMV growth, PLN 29 million of impact. This includes a 16% increase in staff costs, combining a larger team and covering the annual pay round that was back in Q2. There's also a great result in here for bad debt expenses. There's an PLN 11 million pickup year-on-year, 94% lower bad debt expenses. And this is because this time last year, we started the project to move to net collection of commissions at source, which obviously reduces the exposure to bad debt.

So moving on to capital expenditure. That's up 80% year-on-year, but still at a relatively low level as our cash conversion rate on adjusted EBITDA is still at 83.6%, which is very, very strong. We're spending more in other CapEx. The season for installing lockers is peaking in Q3, but we're still being very careful where we're rolling out these lockers to make sure that we get high utilization right from the moment that they're opened. We're also investing in other assets around delivery such as additional depots and also a lot of IT spending. Last year, we were in the middle of the Fit to Grow. We took a pause on a lot of routine spending. This year, that's returning into the numbers.

Capitalized development costs are up 32% year-on-year. Again, it's down to the size of the tech team. We're always investing in growing that organization. They obviously earn more than they did a year ago. And we're also actually installing or developing and deploying more new software, which means that the capitalization rate is a bit higher than it was last year.

So that's the Polish business.

Now let me move on to International, and I'll start with comments about the legacy business, which is the Mall segment. And I think here, the key message is that the size of the loss was relatively stable quarter-on-quarter despite the extent of the transformation that Roy was describing earlier and also aggressive stock sellouts that we were doing in relation to CZC. Despite all of that, the loss of PLN 60 million for Q3 was only about PLN 2.4 million higher than in the second quarter.

And as I said, there's a massive transformation going on. There were significant SKU reductions, so much narrower selection, pivoting towards items that we can sell or we're confident we can sell profitably without such massive marketing spend support that they would ultimately be unprofitable items. So we've been doing that for quite a while, but that SKU reduction is very important. Overall, that means that the GMV is down 34.6% year-on-year as we rightsize the size of the business and create this lean merchant model so that we're ready to sell only on the Allegro marketplace going forward.

When it comes to CZC, we've actually made that step now. The legacy front end was shut down right at the end of the quarter. We made a major effort to sell out the inventory to reduce the amount to be commensurate with the size of the sales on the marketplace. And as Roy mentioned earlier, that 59% reduction in overall Mall inventory equates to about a PLN 211 million release of working capital on a year-on-year basis. So paying for cash covering a lot of the losses that we've been incurring.

Looking at the adjusted EBITDA bridge, we're seeing additional revenues coming in from the WE|DO logistics business in the other revenue and direct cost line. The marketing expense is lower and other SG&A, although there are some group costs being reallocated into Mall, the reduction in the size of the team and repurposing of the employees to work on Allegro projects means that the other SG&A is flat, as you can see here.

So then moving on to the International marketplaces. So our new marketplaces. These numbers for Q3 reflect the allegro.cz and allegro.sk marketplaces, the latter of those 2 launched back in February. As you've heard, we've also just launched the Hungarian marketplace right at the beginning of Q4, so nothing in these numbers.

Active buyers is going pretty well, 2.8 million active buyers across those 2 markets, 300,000 up on a quarter earlier. Traffic is also growing nicely, 96 million, a new peak, 21% up on a quarter earlier. And items sold also a new peak, 5.7 million items sold, 13.7% growth.

Where we're not so happy is on our GMV growth. Sequentially, it's up 8.2% to PLN 384 million. This is actually 97% up year-on-year, when this time last year, we just launched the Czech marketplace. And this relative slower progress is reflecting really 2 things. One is that the ASP is a bit lower than we were seeing, particularly in the fourth quarter, where there was a lot more discretionary, a lot more electronics in the sales mix. And secondly, and most importantly, the shopping frequency, although it is moving upwards and is at a reasonable level, is not moving up as fast as we would like it to and as fast as we aspire. As a result, we've launched the recovery plan around various improvements to user experience and in marketing to make sure that the consumers really understand the USPs that we offer with our marketplace. And we're confident that we can accelerate that frequency over the next couple of quarters. But that really is critical to getting strong GMV growth as we move forward.

Revenue looks pretty good, 37% sequential growth at $41 million, and that's allowed us to hold the adjusted EBITDA loss constant quarter-on-quarter at PLN 88 million. And the loss narrowed slightly in percentage terms to 22.8%, a bit lower than in the previous quarter.

So that's the International business.

Final comments on the financials relate to the group level, and in particular, the usual update on our leverage situation. As Roy already mentioned, we've finished the quarter at 0.95x adjusted EBITDA, which is about 9 basis points of a turn lower than we had at the end of Q2. It's coming really from 2 sources. The increase in the Polish EBITDA is outpacing the growth in the loss in the International operations. And secondly, that's really strong cash conversion that we have means that we have PLN 200 million more than in the prior quarter, PLN 3.836 billion on the balance sheet at the 30th of September.

Regarding the capital allocation policy, we've concluded the work with the adviser that we hired, and we're now at the stage of discussing our options with the Board of Directors as we go through the annual planning round. And I anticipate that we'll have things to tell you on this topic when we meet again to talk about Q4 in March of 2025.

So that's the financial presentation.

Now let's move on and look at the management outlook. There's a few themes that have come up in the presentation so far that I want to try and draw together and I do so in the slide that's entitled Commentary to the Q4 outlook. And I'm going to go through this before I go through the numbers themselves from the outlook.

So starting with Polish operations. It's important, obviously, that the fourth quarter is obviously peak demand. And to get a great full year, we really have to lean into this opportunity. That's what we're doing. We're investing heavily. We're pulling multiple levers across commercial and marketing to ensure that we continue to accelerate our year-on-year GMV growth in the Polish business.

The second line here, just as a reminder, I mean, the guidance is going to be between 11% and 13% growth. But that -- and that 13%, the higher end of the range, which is what we're really aiming for, is comparing to 8.5% growth for Q4 a year ago, yes. So when we talk about the margins, it's important, I think, to take it in the context of the amount that we've managed to accelerate the business over the last 12 months.

Now as I mentioned already, the monetization moves we've done in 2023 have now been fully lapped. Also, most of the Fit to Grow improvements that we did in 2022 and '23 have also been fully lapped at this point. So this means that there's less -- much less of a tailwind on top of the GMV growth to drive higher EBITDA margins and absolute EBITDA growth.

So the adjusted EBITDA to GMV margin that we're expecting for the fourth quarter at the high end with 13% GMV growth, we'll probably expect around 5.5%. At the low end, it may be 5.3% comparing to the 6% for Q3 that I just mentioned. Now I'd like to remind that's within the midterm aspirations that we set back at the beginning of the year, which were to come between 5.3% and 5.7% for the medium term. It also means that if we land at the higher end of that range, you will be looking at 5.8% or so for the full year for 2024.

Moving on to the International operations and starting with the Mall segment. The important thing here is, first of all, that Mall historically was very skewed towards the fourth quarter because of the categories that they specialize in, namely electronics and toys in particular. And we're going into that quarter this year with a very transformed and reduced scale business. As I mentioned already, the SKU count is down significantly. And we're also running in Mall North with 1 of the 2 legacy front ends now closed. The CZC business only trades on the Allegro marketplace. All the stores have also been closed down, and they were an unprofitable but loved asset for the CZC consumers.

So that equates to a much smaller business, and it means that the year-on-year contraction in GMV is going to be significantly faster than that 34% that I was mentioning earlier for the third quarter.

There'll also be impacts from reduced margins, and this is because having now sold down the CZC inventory ahead of closing the front end. Our attention is now moving to Mall. And we're trying to sell out the excess Mall inventories especially on the SKUs that we're no longer going to continue taking advantage of the high demand in the fourth quarter. So that altogether means that the adjusted EBITDA loss will be a bit bigger than it was in Q3.

On the International segment, the GMV growth on a year-on-year basis is expected to be quite a bit lower than the 97% that we had in Q3. And this is mainly because the shopping frequency is not moving up quite as fast as we were hoping for, as I was explaining previously. However, this is the moment when the demand is highest in the year. So we're going to be doubling down on our marketing investments to communicate our USPs and to help us improve the situation with shopper frequency to try and encourage the consumers to really build the shopping habit that we're used to seeing in the Polish market. And we're leveraging the peak season to do that.

It's also worth noting that compared to last year, we have fixed marketing costs to cover on a bigger footprint because the Slovakia business had not launched at this time last year.

So taking those comments into consideration, let me just quickly go through the outlook itself and start with the Polish operations. This is on Slide 29. So the GMV for the Polish operations, we're expecting between 11% and 13% growth. For revenue, 13% to 16% growth, mainly with the uplift coming from the strong advertising. Adjusted EBITDA, given all the additional investment in marketing, in the logistics operations and in the team, 4% to 7% year-on-year growth. And CapEx of between PLN 170 million and PLN 180 million.

For International, that downsized Mall business means that sequentially, there will be a much bigger decline in GMV between 25% and 28% because Mall is mainly a 1P operation. The revenue over-indexes from their retail sales, which means we're expecting between 48% and 52% reduction in revenue. And the adjusted EBITDA for the 2 segments together, we're expecting between PLN 210 million and PLN 230 million loss. CapEx between PLN 30 million and PLN 40 million, including some lockers and some of the software that we're deploying.

So that concludes the presentation. Thank you very much for listening. We're going to hand back now to Tomasz, and we'll go through the Q&A.

[Tomasz Pozniak, executive]

Thank you, Jon. Thank you, Roy. We are now ready to take questions. Jota, please open the session.

[Operator]

[Operator Instructions] The first question comes from the line of Tiron Cesar with Bank of America.

[Cesar Tiron, analyst]

I have 2, if that's okay. The first one, I would like to understand in more detail the nature of the incremental cost that you forecast for Q4 in Poland. I know you mentioned marketing, but can you please elaborate a little bit more to help us understand.

Linked to that question, I have another question. I would like to understand if there's any cost in Q4, which can be considered more like a one-off. So for example, that marketing cost. Also, if you're shrinking the inventory at Mall, how much is that contributing to the loss that you expect in Q4 in International, the PLN 210 million to PLN 230 million. So let's say, for example, if you are not going to shrink that inventory, what would the loss be?

I'm just trying to understand what would be a normalized type of margins. And obviously, you're not providing long-term guidance, but anything you could say to help us would be quite helpful linked to those 2 questions.

[Jonathan Eastick, executive]

Cesar, thank you very much for the questions. I'll take these 2. The -- starting with the one about the Polish P&L. The increase in the marketing spending is going to be quite a bit bigger than we saw in Q3, and that is a big piece of the additional spending. The impact on cost of delivery, I think you should expect to see a further step-up as a percentage of GMV as is always the case. And the SG&A spending given that the Fit to Grow project have pretty much drawn to a close at this time last year, means that the SG&A spending will be moving up as a percentage of GMV a little bit as well during the quarter. And as I was trying to outline, because we've now -- we don't really have the significant tailwind from the take rate in the fourth quarter, it will only be the 60 bps that came from Q1 earlier this year. This is really where we see the lower margin.

There's also an element of seasonality as well. If you look at the trends historically, generally speaking, the take rate is always a bit lower in the fourth quarter where the merchants take advantage of the higher demand and spend less discretionary money.

That's on Poland. Hopefully, that's helpful.

On the International, when it comes to -- I think the question was about, is there anything of a one-off nature? It is true that the sell-offs that we're doing to reduce the size of inventory and get rightsized with the right SKU portfolio ahead of the switch to sell only on the marketplace is somewhat a one-off in nature item. In fact, we did make a provision back at the end of Q2 that is in restructuring cost in anticipation of the CZC sell-offs that we did during the third quarter. We added a little bit to that during the third quarter, and we'll do something similar in the fourth quarter. But some of the loss is going to go through the ordinary operating margin. But in some cases, we'll be giving extraordinarily large discounts in order to fully sell out the inventory that we don't need. And those extraordinary discounts are the ones that we've been putting through as restructuring costs.

So of that 4% drop in the 1P margin that you see in the Q3, not all of that is reflected in the adjusted EBITDA loss that I was just describing.

Hopefully, that's clear. I think the important thing to remember is that this is a transformational journey. And a lot of the cost base, a lot of the fixed cost base is very much attached to the support and the operation of the legacy assets and the legacy software stack and some of these savings that we're looking to realize are rather to be expected in 2025 once we've made all of these changes.

We did say when we were giving the medium-term aspirations and the medium-term outlook in March that it would take this year and next year to get us down to a point where the Mall segment is no longer a financial burden on the organization.

[Cesar Tiron, analyst]

Is it possible to just ask you as a follow-up, the losses in International are, I think, even higher than 20% of Polish EBITDA in Q3. Do you intend in the next quarters to run International with losses at the very high end of that guidance of 20% to GMV -- to EBITDA, sorry, to Polish EBITDA?

[Jonathan Eastick, executive]

I mean I wouldn't want to give specifics about next year, and we will wait until March until after we finish the planning round with the Board to be specific about it. But in the short run, we are basically up against that 20% limit, as you rightly pointed out in Q1 -- sorry, in Q3. But when we're looking at that limit, we're looking at it on an annualized basis. So we're not so concerned about the individual quarters.

We do know that we need to lean into the investment in the International marketplaces to, in particular, drive up the frequency. That will cost in the short run, but we're prepared to make those investments. And when we're successful with that, it will really strongly accelerate the rate of GMV growth from quarter-to-quarter.

Creating some headroom is really all about the Mall segment and reduction of those losses. And as I was just explaining, that's really very much tied to getting the software stack sorted out over the next couple of quarters.

[Operator]

The next question comes from the line of Reshetnev Roman with Goldman Sachs.

[Roman Reshetnev, analyst]

The first one would be on the International that given that frequency and ASP trends in Czechia are lagging expectations and the consumer environment has been quite weak. What makes you confident that higher marketing investments will effectively boost frequency? And how is the current performance in Czechia influencing your plans for the timing of further market launches? And are you considering any adjustments to your strategy?

And the second question on Smart! users in the International, which are reaching 900k in Czechia and Slovakia. So could you please comment on how the unit economics of the Smart! users in this new market compared to Poland? And how important is the expansion of Smart! users in International to your strategy in terms of boosting the frequency?

[Roy Perticucci, executive]

So I think the first thing to say for the International markets is that the market investments are not necessarily only in marketing per se, but it's actually on the focus of increasing the very large number of customers now that we have shopping with us. I think the total number for the region is 2.8 million, so -- of which roughly, I think, 2.1 million to 2.2 million, somewhere around there are in the Czech Republic.

So people have come to shop with us. And I think that's remarkable. As I've said in previous calls, that's particularly remarkable for what is still effectively a very new marketplace and a concept that is not necessarily familiar to Czech customers.

What we're really focusing on are all those additional incentives that get them to come back again and again. So that includes some of the changes to the Smart! program that I've described, communications of what the benefits are of being a Smart! customer by shopping with us, by offering exclusive deals for people who have come to join us. And I think the work that we're doing to really focus on not necessarily recruiting customers, but actually converting customers to regular customers is where I think the bulk of our attention will be.

I think if I heard fully the second half of that first question was what does the current situation do to influence overall our expansion? As I think, again, I've also shared in other calls, we have no intention to go outside of the 6 country perimeter that was established effectively with the Mall acquisition until we've really perfected the marketplace model for sort of International or non-Polish customers.

However, it is very important for our cost base to actually have a marketplace trading in all 6 countries because the conversion to a common tech stack with basically all shoppers and all merchants trading or shopping on the single marketplace in a single tech stack enables us to eliminate a huge amount of costs.

Remember, the Mall business was not actually a single business. It was a collection of non-integrated operations in multiple countries. And this allows us to have a single organization operating principally out of 2 offices or 3 offices counting Poznan and also reducing a lot of redundant operations and activity that we currently have. Currently, we have multiple versions of ERP, multiple WMS systems, and moving all to a single system means that all that duplication of activity goes away and that you have a much leaner organization.

[Jonathan Eastick, executive]

And if I can take the second part of your question, which was related to the 900,000 Smart! users. Most of those Smart! users are on a free trial. We've got quite a lot of customers that have already purchased the subscription. But the idea of the free trials is to really encourage the consumers to try and begin to trust the experience that they get with the Allegro marketplace which is very different in terms of the quality that can be expected compared to the typical Asian marketplaces that are also operating in these countries. And eventually, that should lead to the higher frequency that we're looking for and also to eventually buying a subscription and even further accelerating purchasing, which is what we've seen in Poland over the years.

The second part of your question was around the unit economics. So the Poland-to-Poland cost and the Czech-to-Czech type of costs are at a fairly similar level, where we get higher cost in the P&L that you see at the moment is the fact that a lot of the GMV or a big -- the vast majority is actually Poland to Czech or to Slovakia, mostly using our hybrid setup, but it's still more expensive than Poland-to-Poland or Czech-to-Czech logistics.

Over time, we would expect especially the domestic merchants to be joining the marketplace, and that will change the blend of the delivery cost to have more domestic costs in the mix, and that will obviously then help the overall profitability of the marketplaces. But we've always known that on the cross-border part, the economics will be a little bit lower than they are for Poland- Poland.

[Operator]

[Operator Instructions] We have a follow-up question from the line of Tiron Cesar with Bank of America.

[Cesar Tiron, analyst]

Just wanted to follow up on the -- sorry, same question on the marketing cost, the increase in marketing cost that we're going to see in Q4. Are these related in any way to increased competition that you're seeing in Poland?

[Jonathan Eastick, executive]

Yes. Thanks, Cesar. I mean it is partly competition. As we said previously, there's quite a fight for share of voice. There are new players in the market who are very aggressively positioning themselves in social media or in Google. [Indiscernible] is obviously the key example of that. But all players in the market that we're facing at the moment where retail sales is not that strong and customers are really looking for deals, all players are basically leaning heavily on the marketing lever to attract customers and get their growth.

The advantage for Allegro is in good markets and bad. We tend to grow well. We've now got the financial flexibility that we can spend and we can defend our position in that environment, and we're ready to do that. I mean we really want to see the GMV continue to move up. The medium-term aspiration is to be in low double-digit growth. And if we can get to 13% thereabouts for the fourth quarter, then we're pretty much exiting the year in the position that we like to be.

[Operator]

Ladies and gentlemen, there are no further audio questions at this time. I will now give the floor to Mr. Pozniak for any questions from our webcast participants.

[Tomasz Pozniak, executive]

Thank you, Jota. We only got 2 questions from the webcast participants concerning the cash allocation policy and the International expansion plans, which were already answered. So I believe we can close the call now and let everybody go to their duties.

[Roy Perticucci, executive]

Thank you very much.

[Operator]

Ladies and gentlemen, the conference has now concluded, and you may disconnect your telephone. Thank you for calling, and have a good day.