elumeo SE

XETRA:ELB

Earnings Call Transcript 2021-Q3

[Wolfgang Boyé, Chairman of the Executive Board & CEO]

Good morning, and a very warm welcome to the Q3 2021 Financial Earnings Call of elumeo SE. I'm here together with my colleagues, Boris Kirn, Florian Spatz and Riad Nourallah, and we will be presenting to you the financial results of the 9 months 2021 and the third quarter of 2021. This call will be recorded. [Operator Instructions]

[Boris Kirn, COO, MD & Member of Executive Board]

So good morning, and thank you very much. We would like, if you go back once, Riad, ah, we have the summary prior to the table of contents. We are happy -- so let's go one further. We are happy to report that also in the third quarter of 2021, we have been able to continue our profitable growth. As we have already said in the half year numbers, we foresaw that the climate for further growth in the second half of this year will be a little bit trickier than it was in the first half.Nevertheless, we have done slightly better than we had expected. We have been able to roll our revenues by 15%, which is a good outcome in the current marketplace, in particular, if you, for example, compare our performance of our web shops with the overall performance of the German e-commerce market. You see that we have been able to outperform the German e-commerce market by 50%.Gross profit in Q3 grew slightly faster than revenue, and that is something that makes us quite proud because you may recall that in the third and fourth quarter of 2020, Germany had a reduced value-added tax from -- down from 19% to 16%, which was helping our margins also slightly, and we have been able to compensate that with our growth and the effect in the third quarter. If you compare that with the last year's was roughly EUR 300,000 only.So to put it bluntly, prior to entering into the call, in the quarter, we had to compensate EUR 300,000 in margin in order to only come back to 0. So that was a great outcome and we are proud of that. As we presented in the half year numbers already, we in, Q2 2021, launched a new video shopping app, which is called jooli. And after launching this app, we are very happy to report that this app has started to grow quite fast.It's growing faster than 100% month-on-month and played out already 41,000 videos in October only and resulting in this video shopping app being most likely the fastest-growing video shopping app in Europe at the moment. In total, we are confirming our outlook for 2021 as we confirmed it in the half year numbers, we consider that we will have a sales growth in the low double-digit percentage range and an adjusted EBITDA in the low to mid-single-digit million euro range.And I would now like to hand over to my colleague, Florian Spatz, who's going to guide you through the performance of our Webshop business and our online business and TV business.

[Florian Spatz, MD & Chief Sales Officer]

Exactly. And I would like -- good morning also from my side. I would like to start with the Life business, which is the biggest part of our total business and with one specific channel within the Life business. So there are different ways to buy in our live show. And the most common one, of course, is via telephone. But the channel with the highest growth rates has become the billing agent channel. So what is the online billing agent?It's basically a tool of the elumeo webshops that allows customers to see the live stream of the show, and to participate in the live auction with a simple click in one of the tools where they can directly buy the presented product of the live show. So there's no need to call a telephone number and/or to speak to a customer service agent. It's a very easy and smooth automated way to participate online in the live show, and you can watch also the show without having a TV.So it basically combines the commodity of online buying with this special customer experience we provide with our video content and our live show. And already since the beginning of 2021, we promoted this channel more aggressively. And yes, it's since then been developing very nicely. We increased the amount of customers using the bidding agent by 22% compared to -- in Q3 compared to the previous year period. The users are coming both from web and TV.So it's not only a digitalization project for us. It's also a project where we bring customers who we acquired via web into our video world. And yes, the effect is a nice growth of 36% in revenue compared to Q3 2020.If we go on the next slide, we can see that as in H1 2021, we're continuing to optimize our live program, our live scheduling, putting the focus on new customer acquisitions. And for new customers, there's one extremely important factor, which is products with a selling price below EUR 100 -- and we know this from the past because more -- 60% of our new customers spend less than EUR 100 in the first purchased article. And therefore, with our merchandise departments together, we are continuing this new customer product strategy, and we increased the airtime limits, the total airtime show minutes for the so-called below EUR 100 product from 51% airtime share to 59% airtime share. And at the same time, we were able to increase the new customer number by 12% in our live TV business.On the next slide, we will come to our static Webshop, which is -- which was once again one of the main growth drivers for elumeo also in Q3 with revenue growing by 21%. And as Boris Kirn has already said, if we compare this to the total revenue of the German e-commerce markets according to the [indiscernible], e-commerce and [indiscernible], we see that we were able with this growth to clearly outperform this by close to 50%.The main growth driver were optimizations we did in our mobile navigations. Most of our traffic and most of our customers on the Webshop come via mobile. And yes, the navigation on mobile is clearly different from desktop because you have much less space. Every button needs to be able to be clicked in an easy way. Hidden navigations are complicated. So we clearly improved this and we see an improved conversion rate of 7% in Q3 compared to last year's period. Also, we improved our [ worth ] campaigns, bringing back existing customers into the shop, and this also helped us to increase total revenue.And finally, on Slide #9. We see that -- we continue to see a very strong growth in new customers also in Q3 with a plus 73% compared to last year's period. We improved several -- and we launched several new customer campaigns, the main online marketing channels, and this allowed us to continue to successfully scale the paid marketing campaigns. We improved the retargeting of potential customers who have already visited the shop, but who didn't buy it. So we bring them back and make sure that they start to buy. And one important factor here is the optimization we did in the registration process. So when a customer buys for the first time, needs to put his data, his address, et cetera. And especially for mobile, but also for desktop, we did several improvements here, and we see that the conversion rate of the new users improved by 24% in Q3 2021 compared to Q3 2020. So that would be all from my side.I will now hand you over again to Boris Kirn for our jooli project.

[Boris Kirn, COO, MD & Member of Executive Board]

Okay. We had this slide already in the half year numbers. I just put it into the presentation to very quickly explain again what jooli is. jooli is a video shopping app in which external product partners can promote their own products and by uploading short 60-second-long videos in the format 9 to 16. And when a user of jooli decides to be interested in a product, they can click on purchase button and get redirected into the Webshop of the product partners directly and can purchase the product in the Webshop of the product partners.This platform is managed by algorithm which determines which video to be played to whom and is completely cloud-based, and so very scalable. And as everything that looks on the front end very simple, it has a quite complex back end and I would like to shed some light on some parts of this back end to you so that you can understand what the potential of this project really is.On the next slide, as I have said already, the app is growing extremely fast, which obviously it has to because it has just recently been launched. So if it wouldn't be growing like hell, then we would face a problem. As you can see from 2,000 videos that we played in June, we have scaled the app to EUR 41,000 that have been paid in October. So a 20-fold in essentially 4 months, and we continue to see this growth also in November.So we expect that these high growth rates will continue for the foreseeable future. Since the launch, we have been able to add 20 new channels. We have started to market this platform actively towards e-commerce shops and other players in the market, and we are very happy with the mix of products that we're presenting in the app at the moment. I think we have a good assortment and now the main strategic objective will be to get more of this and have more videos via more products and a greater variety.In November, we have already reached more than 10,000 users who have registered in the app. Some of these people have seen only one video, other people have seen 200 videos. So it's a pretty diverse group of users, but as the group of users continues to grow, which is clearly enormously important and we are now to version 1.35 that we have published. We have, in the course of the last 3 months, predicted a great emphasis on optimizing the app, optimizing in particular the streaming function of the app to make it more seamless and faster. And this is also something that we will focus on in the coming 6 months to make it better and better account.On the next slide, I would like to give you one little idea of what kind of platform we have behind jooli because we believe that we have a pretty innovative and also a quite unique business model that we have put behind this app, which is going to, from some certain point, allow the app to fuel its own growth by itself. And the technology that we have developed for that is a technology that we call customer pulling technology, and I have made this a little picture in order to show this to you to explain a little bit because, as I said, with the app, the front end of this is very simple, but the back end is a little bit complicated.I'll make you an example. We have here 3 examples as channels, Channel A, Channel B, and Channel C. These 3 channels have the option to generate a [ fire-based ] dynamic link in the customer administration tool of the app and to use this link in order to invite their own customers, so the -- to invite the customers they have in their Webshops or to invite the followers, they have on Facebook or on TikTok or on Instagram and to invite all of their customers and followers to join jooli and to download jooli in order to play to these customers also the videos they have in this channel.So these customers then become part of the pool of jooli users. And as you can see in this pool, all of these users continue to retain the color of the channel where they came from. So we continue to see yellow customers from Channel A and green customers from Channel B and blue customers from Channel C. And now the customer pulling technology kicks into play because if a yellow customer then buys a product from Channel C, so from the blue Channel, then we track this in our app. This triggers a commission of 2.5% of the sale that Channel C pays to Channel A.And on top, it triggers EUR 10 new customer bonus for the first buy or in 2022, it's still a bit lower. It's only EUR 5. This is something that, to our knowledge, nobody has tried in the Internet yet. It's essentially sales cooperative in which all of the channels that participate in the app participate together in order to pull their customers in order to increase the reach and the total coverage of these products. And it also allows all of these channels to significantly lower their customer acquisition costs. In most businesses that I track in the Internet customer acquisition cost of webshops range between around EUR 40 to EUR 80 for classic and consumer products.And clearly, for life insurance, this can also go up to EUR 500. But for classic consumer products like the products we have in the app, most of the time customer acquisition cost ranges between, let's say, EUR 40 and EUR 80. And by doing this as a channel, you have the ability to lower your customer acquisition cost because you can essentially recover part of the customer acquisition cost by sharing your customer with new other channels on this platform.We have already started to do first test fronts to see how this technology works. And we have also done many conversations with the channels we have on the platform, and we see that all of the channels are enormously eager to try to test this out because they also see the long-term potential of this technology, and we will fully launch this in the first quarter of 2022, which is -- if it works the way we have foreseen this is going to drive growth of the platform enormously. So we will report about that again together with the full year numbers. And hopefully, you will see then more clearly how this will dramatically drive the growth of this platform.The next step forward, just quickly for key things that we're going to do with jooli. The first is, we have launched a dedicated B2B marketing campaign in November 2021 in order to continue attracting additional channels. And so far, we see that this works very nicely. We have generated many leads and that will now start to convert into channels. In the first quarter of 2022, we will use the customer pulling technology that we have developed for another tool, which is a tool that will allow social media influencers to become ambassadors for jooli and participate in the same commission-based system as channels with programs were so that they can also promote this app towards their audience.Then the third point in November, December 2021, so essentially in 2 to 3 weeks from now, we will start to internationalize the platform. It might -- may seem strange to you that the first foreign platform that we will launch will probably be the heavy platform that we're going to launch in India. And then we will continue with Italian and French, in the German market and also the English version. And the hindi version in India has a very practical reason to it. There is a huge, huge, huge market opportunity in India at the moment because the Indian government has just recently banned a rather large number of Chinese apps.And the list of banned apps in the Indian market includes TikTok and also Taobao. And these 2 platforms are essentially the most successful video shopping apps that exist in China and also were enormously successful in India. So there is a huge market opportunity at the moment to fill this -- to fill this gap and promote something that's also a little bit more partner-oriented than the Taobao, for example, is working.And then the fourth point, very important for the further growth, we have started to develop the main frameworks in order to be able to offer our standard application programming interface, the [ APIs ] and for the main e-commerce shop systems so that in the future, people will be able to log on to the jooli system automatically and make all kinds of decisions based on what products to offer, what products not to offer and based on their own systems and not have to use the [ Tibio vendor ] interface that they have to use at the moment in order to manage their channels or to make this more automated and have less people managing this.So in total, we are extremely happy with the development of jooli so far. We are aware that we will have to continue this development for many months to come. But as with every journey, it always helps when the journey starts already quite quickly and gives a good motion. And I think in the long run, jooli will play a very important part in the total business of elumeo.And now I will hand over to Riad to guide you through the financials.

[Riad Nourallah, Executive MD & CFO]

Yes. Let's take a look at the financial side. So as summarized by Florian and Boris Kirn, a very strong growth in Q3 by 15.3% from EUR 10.1 million to EUR 11.7 million. And also this is reflected in the gross profit where we had like an adequate growth by 15%. I think concerning the cost side, there are very important things to say. The first point is, of course, the last year we used the short time allowance program of the government. And so there's a shift and an increase in personnel costs. And of course, like the second point, as Florian mentioned, so we made big investments in new customers and online and this also reflected in higher online marketing costs.I think like from the cost side, these 2 points are quite important. And as Boris Kirn already said concerning like for jooli, all the development costs, they are not capitalized, but they are regarded as expenses. Concerning like the 9 months development, we can see really like a stable growth. We see the revenue increased by 25%, gross profit even higher over proportion by 32%, and this reflected really in a strong adjusted EBITDA by EUR 2.5 million.I think like from the key performance indicators, we can see, on the one hand, we saw like the operational KPIs. So we can also see, of course, this reflected in a strong cash flow. We have a strong operative cash flow within the first 9 months by operating cash flow by EUR 1.5 million. And of course, concerning like on the side of the balance sheet, this is also reflected in higher equity.I think it's also like important to take a look at the key performance indicators. And as we can see, the key performance indicators are mostly driven by the higher and new customers we have. So I would put the focus, first of all, on the new customers. So we see a strong growth in new customers, and we see them on both channels, on the one hand, in the TV business, on the other hand, also, of course, like strongly in the web business, and we see a growth by nearly for more than 55% in Q3 and also even a stronger growth within the first 9 months by over 80%.I think this is a very strong and very good growth we have. And concerning like the overall KPIs in the web business, we integrate them because I think they are quite important, like for our investors to see, okay, how the customers evolve and how is their basket. But I think the main driver is like the new customer acquisition, which we can see on this slide.Concerning the outlook, and as Boris Kirn already said, so I think we are quite stable in the outlook. We have, of course, like further 2 months. And so -- and of course, like concerning there, nevertheless, due to COVID, we see increased numbers also. And then tax rate that there's certain kind of uncertainty, but we stay stable with it. So we see clearly growth, low double-digit growth. So we stay with it. So concerning like the revenues, concerning like the gross profit margin over 50%, and we'll have like a adjusted EBITDA growth.

[Florian Spatz, MD & Chief Sales Officer]

Thank you very much, Riad. And I would like now to hand over to my colleague, Boris Kirn, who is going to guide you through the approach for the Q&A session.

[Boris Kirn, COO, MD & Member of Executive Board]

[Operator Instructions] And then the first one is up already. And I will then unmute you or allow you to unmute yourself, and then we can go through the questions one by one.So Volker Bosse, you can now unmute yourself.

[Volker Bosse, Co]

Do you hear me now?

[Boris Kirn, COO, MD & Member of Executive Board]

Yes.

[Volker Bosse, Co]

Okay. Perfect. Yes. Thanks for the presentation, and provided information so far, with a great achievement, congrats on third quarter results. My question would be on the double-digit decline average sales per product as well as the average gross profit per product. Is this by purpose and is this showing your new pricing strategy, lowering prices in order to drive volumes and to be more attractive for first customers?And is it going to continue? So to give us a guidance where you think is your sweet spot on average prices going forward. And the second question would be on jooli, Yes, really exciting to see what you developed here in the background. And if I stand right, it is your proprietary technology means your -- is belonging to elumeo means also the sales and earnings generated, we had jooli fully consolidated within elumeo. Is it just your own product which is then in your P&L? Or is it also the commission of other products who are sold throughout the jooli platforms? Perhaps a bit of the details regarding the financial outcome for you.

[Boris Kirn, COO, MD & Member of Executive Board]

Yes. Let me answer. Thank you very much, Mr. Bosse. And let me answer the first question and the second question together. And yes, if you could go to the KPIs to the second page once more, please, because I would like to put your question a little bit more into a broader context. As you can see in the -- the second -- as you can see in the development of new customers, we have seen a enormously fast-growing first half year of new customers were in web and also in the television. We've been able essentially to double the amount of new customers that we could attract in regards to the -- with -- comparing to the last year. In Q3 2021, this was still very fast, but this growth has started to slow down a little bit. This growth essentially has happened from an enormously increase in online traffic.And we have been able to capitalize on this online traffic faster and quicker than many of our competitors, which has allowed us to lower the customer acquisition cost that we have had in the German market. And we took advantage of the situation there really very significantly boosting our new customer acquisition.And even if this has resulted in having higher marketing spendings in Q3 than we would usually have had on that front. This -- part of this also resulted from the fact that we have offered more low-cost products. So -- and we have not lowered our prices, but we have increased the offering of products below EUR 100, which is a product that is very attractive to new customers. And this has resulted in a slight decrease in the average sales price and also a decrease in the gross profit for items sold.In order to put this into a long-term perspective and see why we have done this is if you look at our customer values after 1 year and the customer value after 5 years, you see that we have enormously high customer lifetime values. The customer lifetime value after 10 years is even higher. It's close to double the figure of the 5-year customer lifetime value.So once we have a customer in our system, we are able to keep these customers and supply these customers with a jooli product for quite some time. So in Q3 2021, we took advantage of the effect that there was a lot of jooli search traffic out there in the Internet. A lot of people are trying to find new products. And therefore, we said, okay, we have no idea how this is going to continue in the fourth quarter and the first quarter of next year and the second quarter of next year.So better we try to bring all of these interested customers into our world of jooli and then to see whether we can sell them also higher price point products sometime in the future. And this significant boost has resulted in the average sales price going down slightly, because as you see, essentially, we have increased the amount of new customers from the last year by 4,000 new customers only in the fourth quarter. The second question was regarding jooli.

[Volker Bosse, Co]

Perhaps just going -- sorry, to interrupt answering the question, what do you see is an average sales price per product going forward as a reasonable price so to say, could you -- can you -- beyond.

[Boris Kirn, COO, MD & Member of Executive Board]

This sales price will always fluctuate. And the shorter the time frame you look at, the more it will fluctuate and it will continue to fluctuate between, let's say, EUR 85 and EUR 95 up to EUR 100. If you look at the 9-month 2020 figures, you saw that at that time, we had an average share price above EUR 100, just at that time, basically due to the fact that we had virtually no product. And we had big problems to manage our product assortment. And therefore, we clearly focused on product that was generating the highest margin for us in terms of absolute margin per piece. So that was not a strategic decision at that time, but more a decision to drive as much gross margin as possible. Traditionally or historically, kind of our average sales prices have always fluctuated between, let's say, 85% and EUR 95, EUR 100 roughly. And we assume that this fluctuation will continue between these 2 points.

[Volker Bosse, Co]

Okay. Sorry for interrupting. Gives a good idea.

[Boris Kirn, COO, MD & Member of Executive Board]

Yes. Since we have so many SKUs and we manage kind of our product flow towards our customers very much on current demand, this will continue to be always kind of going up and down a little bit. So if this goes up some time, this does not necessarily mean that it will continue to go up. And if it goes down, sometimes it doesn't necessarily mean that it will continue to go down.And regarding jooli, jooli is a 100% subsidiary of elumeo. The company is called jooli.com GmbH. So this is fully consolidated into the elumeo universe. The marketing campaign, we do as a marketing campaign towards business-to-business customers. And in this marketing campaign, we do not speak about elumeo at all. We only position this to potential channels as a startup because this makes us more interesting. But in total, this is a 100% subsidiary, and we have no intention to change this very much.elumeo currently runs 4 channels on jooli and all of the sales of these 4 channels get consolidated into the Juwelo numbers. The platform itself will be free of charge for our channels until the end of 2022. So until the end of 2022, this business will generate mostly cost within the elumeo universe and no revenues because this is a clear land grab project. And we have seen that customers or channels are most likely to onboard on the platform if they hear, okay, this is completely for free, you don't even have to buy a commission. And then starting in 2023, we will start charging the 5% commission to channels and start to also build revenues.Until then, we will always reserve some part of our free cash flow for this business in order to allow it to grow as fast as it needs and make sure that we retain enough cash flow for the remaining objectives for which we generate cash flows, which is investments in elumeo, potential dividend payments and also increasing the results of the business.

[Volker Bosse, Co]

Therefore, at the new customers, which you -- when we are the 4 channels on Juwelo are included in the elumeo active customer numbers, for example. Also the sales generated via the 4 tenets on jooli is included in the elumeo group sales, right?

[Boris Kirn, COO, MD & Member of Executive Board]

Yes, the sales is included in the elumeo group sales, but this is not a huge number at the moment just because of the fact that we have 10,000 active users or installed base of the app at the moment. And we have only 2 weeks ago started to promote the app towards Juwelo customers. So this is all, but this gets all included into the Juwelo business. And new customers, so if a Juwelo customer gets a download of the jooli app and then buys a product on Juwelo, and this customer continues to be an active customer of Juwelo and doesn't get counted 2 times. So the new customer number that you have seen for Juwelo is real full new customers that come from the outside world into Juwelo.

[Volker Bosse, Co]

Understood. Perfect.

[Wolfgang Boyé, Chairman of the Executive Board & CEO]

Volker Bosse, you're happy?

[Volker Bosse, Co]

[Indiscernible] all the best for the...

[Wolfgang Boyé, Chairman of the Executive Board & CEO]

And -- okay. So we will move on to the next question. [ Mr. Frey ], you have raised your hand. I will allow you to unmute yourself which is now you should be able to unmute yourself.

[Jörg Philipp Frey, Senior Analyst]

Well, first of all, congrats on the nice quarter and particularly on adding quite a number of channels on jooli. If I'm not mistaken, that was another 15 channels in the 6 weeks since we start the last quarter. So probably I will start here with jooli. The last call, we already try to dissect a bit the direct costs of the project. And my understanding is you haven't adjusted this cost so far in your adjusted EBITDA number, is that correct, first of all?

[Riad Nourallah, Executive MD & CFO]

Yes, we have adjusted the cost. The total cost of this business so far was roughly EUR 300,000. And we have adjusted this in the adjusted EBITDA, and we have also disclosed the precise numbers in our reporting. So you have all of the adjustments that we have made to the adjusted EBITDA in the report.

[Jörg Philipp Frey, Senior Analyst]

And I guess, is this only the directly -- the direct costs of the -- [indiscernible].

[Riad Nourallah, Executive MD & CFO]

Sure. Sure.

[Jörg Philipp Frey, Senior Analyst]

Rather concerned that [indiscernible].

[Riad Nourallah, Executive MD & CFO]

Sure. We would say, okay, let's adjust the cost upwards [indiscernible] all my technology colleagues, then we would kind of be able to increase our adjusted EBITDA drastically, but that would be a -- be exceeding, no?

[Jörg Philipp Frey, Senior Analyst]

Yes. Well, I think it will -- on that key, you're certainly not a lot what you were. I just wanted to make that clear.

[Riad Nourallah, Executive MD & CFO]

Okay. So I can -- yes, let me explain this very precisely so to make sure that it's completely clear what kind of cost is adjusted and whatnot. We adjust all of the cost of marketing the app itself. So everything that we pay to Google in particular to get new customers, any adverts, campaigns, all of that is adjusted. All of the external costs for agencies, PR, the new B2B campaign, so all of this direct external cost is adjusted.And then the internal cost of elumeo is only adjusted in the situation where we have had an employee working, for example, in our tech ops department and who has been a product owner and has been doing product-owning projects for Juwelo. Some of these colleagues now work 100% for jooli and have been replaced in Juwelo by new people that we have hired. These costs that we have adjusted because we said, okay, first, prior we had person A. Now we have person B. Person A now works a 100% for jooli. So we adjust this once the person has been replaced. Any other cost, so my time of this project, via the time of this project, fully on time of this project is whatever else overhead functions of elumeo do are not being adjusted because clearly if jooli wouldn't exist, then I would not go down to 50% part-time. So the cost -- I would happily do so, so I won't say that this is going to happen in the near future.

[Jörg Philipp Frey, Senior Analyst]

Yes. And you mentioned actually this message, probably massive with the next separation, but the marketing campaign, B2B marketing campaign for jooli, can you share with us the costs which you've allocated for that campaign? And also particularly the cost going into 2022, basically, what we should adjust for the new app versions in the different language.

[Boris Kirn, COO, MD & Member of Executive Board]

So the B2B campaign consists basically in 2 main approaches. Approach #1 is a classic PR campaign that we are running in order to promote the business via press releases, direct contact to websites presenting this app on classic e-commerce shop-related website and newsletters such as, for example, the Internet World, where we have just had a very nice article regarding this.And the second approach is a very technical approach where we have an agency that helps us to run a business-to-business marketing campaign on LinkedIn in which jooli is being promoted in editorials and advertisements towards potential customers on the web. If you -- if we take all of this cost together, so the cost of the agency, the cost of the campaigns and all of that, this at the moment is roughly in the region of EUR 10,000 per month. And we expect this to be maybe slightly lower going into 2022 because we believe that once this has started to develop, then probably we will have to do a little bit less marketing expenses.The remaining marketing expenses of the app at the moment are in the region of EUR 10,000 per month for promoting the app on the web. And that is very tricky at the moment to predict for 2022 because we will have a very pragmatic approach for the further development of this app in 2022. First, my colleague, Florian Spatz, will happily develop the entire budget for 2022 for the amount of profit we can generate with Juwelo.And every cash flow needed in order to increase the profitability of Juwelo will clearly be allocated to Juwelo because this is our core business, and we'll always need to be protected. And as of that, we will have some free cash flow for the year 2022, which at the moment, I only have gut feeling how much it will be, but it's prior to flooring and finishing his budget is very tricky to determine how that will be.And then we will sit together and say, okay, how much of that free cash flow will we use in order to grow jooli in order to see that it will grow as fast as possible, because clearly, at the moment for promoting and marketing the app, you can spend as much money as you want. Webshop marketing, we can happily spend EUR 1 million, we will have no problem in spending also EUR 10 million. So we will have to be very disciplined and very clearly focused and say, okay, this is the amount of money that we will use from the existing cash flow in order to grow this.And hopefully, based on if you can go to the customer pulling slide once more, this entire idea of the customer pulling technology and also of the ambassador program that we launched in Q1 2022 is that we believe that we will be able with a fairly limited amount of investments to ignite a, let's say, a flywheel self-enforcing process that will create growth also out of itself.So to get away from customer acquisition costs in a situation of EUR 50, EUR 60, EUR 40 something like that, but to kind of start a self-enforcing process to be able to grow this channel even without spending EUR 10 million in marketing costs because I'm not so sure that whether this is still really required to start a proper business and if you do this community based the way we are doing this at the moment.

[Jörg Philipp Frey, Senior Analyst]

Well, I can only applaud this idea. So one addition on that one. Have you already kind of idea about your conversion rates and how we have evolved over time? Or is it you're already reasonable to look at that at all?

[Boris Kirn, COO, MD & Member of Executive Board]

Clearly, we do have an idea about the conversion rates. We also look at it. But in all honesty, this is not our biggest focus at the moment. Our biggest focus is essentially one key metric at the moment, which is the amount of paid videos. So this is really the metric that we push as much. If people spend a lot of time in this app and watch videos and such videos and such products and help our algorithm to play them better videos, then eventually they will start to buy.At the moment, this is a clear land grab strategy. So we're trying to move as fast and to grow as fast to get as many people into this app as possible. We would like to have an enormously increased amount of channel in this app by the end of next year. So I think more in the 100s than in the 10s. So the volume of channels will have to be much higher for the entire technology to really work.And if all of these people come to our little shopping center that we're building here, then they will eventually buy. It's a little bit like when Florian runs a marketing campaign on Google for promoting the Webshop, he can -- if he wants to make money as fast as possible, then he spends all of his money on retaining existing customers because this is kind of how he can make the conversion as fast as possible, but that will result in the Webshop not growing as fast or he can spend this money on growing as fast as possible and getting new customers, which in the long run will pay off more.

[Jörg Philipp Frey, Senior Analyst]

Yes. So stopping a bit with jooli, but going back to the core business. And well, if I'm -- last year certainly, the Q4 was a bit unusual because of all the lockdown measures. And so what are you currently seeing in terms of momentum? Well, we are rapidly approaching the period after first lockdown actually last year. So are you continuing to grow on this pace or should we factor in a certain kind of drag for the fourth quarter?

[Boris Kirn, COO, MD & Member of Executive Board]

Unfortunately, at the moment, it is for us, virtually impossible to really predict the development in the fourth quarter if we compare it to the last year because in the last year, we had a huge, huge, huge second half of the fourth quarter. And we have absolutely no idea how this is going to develop this year. Currently, we continue to see growth also compared to last year, which is good news because also in the fourth quarter, we have to compensate for the VAT reduction of last year.We also have to compensate for the fact that last year, everybody was essentially staying home and our Christmas presents had to be bought online. So there's quite a few factors. It is also about managing our supply chain at the moment is a real challenge. When the COVID-19 crisis hit in February and March 2020, we have, for the first time, just at the very beginning of the COVID-19 crisis, we had a huge disruption of our value chain. After that, we have been able to adjust.At the moment, as are facing many other people, we do have continued problems to manage supply, to manage supply chains, logistic chains get interrupted, flights get canceled. So this continues to be a real challenge. So in total, we see that the quarter is going at the moment good, will continue to grow. But what the total outcome for the quarter is going to be will probably be determined for us mid-December. So it will take another 4 to 5 weeks to really see how this is going to develop. And I believe if you ask the same question to most of our colleagues in the e-commerce business, you will from most of them get the same response. [Indiscernible].

[Jörg Philipp Frey, Senior Analyst]

Yes. Totally, we feel that there's lots of uncertainty. And in your specific case, just to get things clear, am I right that this drop in the gross margin that you had in last year's Q4 was mainly due an abnormally high fear of high-ticket items with...

[Boris Kirn, COO, MD & Member of Executive Board]

Yes.

[Jörg Philipp Frey, Senior Analyst]

So this basically should only repeat if you have basically a pretty similar success in that regard, or...

[Boris Kirn, COO, MD & Member of Executive Board]

Yes. And that, for example, is one success that will be challenging to replicate. Last year, we had a situation that we had a huge amount of high-value producers who are sitting on enormous amounts of inventory and have no idea of what to do with this inventory because the shops were closed where these high-value items would usually have been sold in Christmas period.And we have been able to get, as we have said in many presentations, a lot of product on commercial base. So people shipped us, I think in the total, we had -- correct me if I'm wrong, a couple of million euros in commission-based product in our warehouse. So we could always select the best performing product immediately and sell this. Clearly, with this, we have attracted a lot of customers who are buying these high-value items from us. But I would be surprised if we would also this year reach the same levels of commission products that we had last year in order to continue to grow in the same amount in 2021 as we did in 2020.

[Jörg Philipp Frey, Senior Analyst]

All right. So keep fingers crossed that everything plays out all right for you and well, have a good time.

[Boris Kirn, COO, MD & Member of Executive Board]

Thank you very much.

[Wolfgang Boyé, Chairman of the Executive Board & CEO]

Any other questions, please indicate your hand if you want. Otherwise, we are coming to an end. I'll hand over to Boris Kirn for closing comments.

[Boris Kirn, COO, MD & Member of Executive Board]

Okay. Thank you very much. It was a pleasure presenting you the results of our business in the third quarter. Many of the investors who are here have been for many years, and I'm very happy for the investors who have stayed with us in bad times so that they can also enjoy the good times, and I'm looking forward to presenting the full year numbers to you in April 2022. Thank you very much.