elumeo SE

XETRA:ELB

Earnings Call Transcript 2023-Q3

[Florian Spatz, executive]

Good morning, ladies and gentlemen, and welcome to our Q3 2023 Financial Earnings Call. Together with my colleagues, Wolfgang Boye and Dr. Riad Nourallah, I will guide you through the key developments of the third quarter of this year. As always, this call will be recorded.

In summary, I'm happy to report that despite the continuous challenging economic environment, and the low consumer sentiment driven by negative income expectations and a very limited propensity to buying of customers. We have been able to slightly grow to EUR 11 million and to improve our profitability compared to the previous quarter to EUR 0.5 million adjusted EBITDA. We continue to clearly outperform the market, which had to record once again significant revenue declines. To give you an example, the online jewelry market went down by 20% in Q3.

An important factor for our market outperformance was the loyalty of our customers and the very successful new customer acquisition. While the market continues to face revenue and customer declines throughout the whole year 2023, we accelerated the growth of active new customers quarter-by-quarter, reaching in Q3 and active customer growth of 16% compared to last year quarter. Regarding our Webshop business, we can report an increase of revenue of 15% in Q3, mainly driven by a very strong new customer acquisition. In fact, we increased new web customers by 45% in Q3 versus previous quarter.

So while we cannot change the economic environment, it's simply out of our control we can focus on our customers, on customer relationship and a new customer acquisition and prepare for the time once the consumer sentiment improves again and put ourselves in a good position for growth. With our video shopping app Jooli, we have successfully launched the in-app payment function, jooliPay in August. Almost all channels have been converted to the new checkout procedure. The next steps are to increase the payment options and improve the customer onboarding experience.

As we announced last time in our half year presentation, we have started a strategic growth program called #juwelo100. The target of this program is to increase the revenue of our core jewelry business to EUR 100 million by 2030. In the upcoming slides, I will give you a little insight into the progress and show you 2 examples of our growth projects. And finally, we confirm our outlook for 2023.

So I will skip this slide and go directly to Slide #6. Here you can see the development of our business since 2021. And if we look at the last quarters, Q1 2023 remains the only negative quarter. Since Q2, we returned to profitability and stay profitable also in Q3 with EUR 0.5 million. So let me give you some insights about the key developments in the third quarter.

Also, the third quarter of 2023 was marked by a highly challenging economic environments, negative income expectations, high inflation rates clearly above the target of the European Central Bank of 2%. And all this resulted in a very limited propensity to buy. So [indiscernible] the sentiment and recorded a very negative score.

Consumers are simply not in the mood to spend much. They remain in a money-saving mode. And on this slide, in the bars on the left, you can see that this impacted the market in a very significant negative way. All major markets to which we can compare our business had to record heavy revenue declines. The e-commerce in total as reported by Bundesverband eCommerce und Versandhandel went down by 14%. The multichannel markets went down by 19%, and our core market, the online jewelry market went down by 20%.

In comparison to this, we have been able to slightly grow our revenue by 1%. Let us take a look at important factors behind the outperformance of this market. On the chart on the left side, you can see the growth of active customers quarter-by-quarter in 2023, always on a year-on-year comparison. So Q1 2023 compared to Q1 2022, et cetera. In the course of 2023, we have managed to accelerate our active customer growth reaching an increase of 16% of active customers in Q3.

The growth of active customers comes both from our main revenue channels, the life business with a share of 14% and our webshop business with a share of 84% and mainly as a result of significant increase of new customers if I'm going to show you on one of our next slides.

Normally with such a significant growth of active customers, one would, of course, expect a proportional high revenue growth. So the reason why this effect cannot be seen yet is, not surprisingly, the current customer reticence, the current money saving mode of our customers. We can see this in the second graph that shows the revenue per customer, which went down by 13% compared to last year quarter.

If customers would have spent their usual amount of money and 2022 was not a revenue for customer peak year at all, this would have increased our revenue in Q3 by EUR 1.7 million, so by 16% revenue growth. So again, as I said, the economic environment is out of our control, but we are preparing on the -- for the time once consumer sentiment increases and put us in a position for growth.

Speaking about growth, let's take a look at our static webshop business. Online jewelry market went down by 20%. We have been able to grow 15% with our webshop. Besides several on page improvements, such as the AI-based search function with personalized product results, a significant growth driver has been our successful online marketing resulting in a huge acquisition of new customers, as I'm going to show you on the next slide.

And to give you a little outlook today is 10th of November. So in exactly 2 weeks is Black Friday. So it's a very important time for our business. We will see what the purchasing behavior of our customers will be. And what we can already say is that on the 1st of November, so the first day of the Black Friday month, the Black Friday season, we've been able to record the highest webshop revenue on 1 day ever achieved in the history of our company.

In our Q2 call, I announced that we expect to be able to further increase the number of new customers by scaling the marketing channels in the upcoming months. And this is exactly what we did in Q3. We worked a lot on the marketing algorithms, we prepared campaigns, and we increased the online marketing spendings by 29%.

The result was a significant increase of new customers by 45%. Besides the scaling of marketing budget, another important success factor was the improvement of our lending pages for new customers. And we are planning to improve this further. For example, we want to highlight in a more visible way our USPs, such as, for example, the price advantage of 45% compared to traditional jewelers and also the new customer welcome package that every new customer receives.

So this will further improve the conversion rate of potential new customer traffic. In our H1 call, we have presented to you our strategic growth program, #juwelo100 with a target to grow to EUR 100 million yearly revenue in 2030. The program focuses on 5 main strategic areas: video shopping. Video shopping is probably the main pillar of our business model, bringing higher customer lifetime values compared to all static webshops or static retail platforms. It has great conversion rates. It allow us to transport both facts and emotion and it puts the focus on inspirational shopping. And our task is to digitalize what we are successfully doing in TV.

The second main topic is artificial intelligence. Everyone speaks about it but not everyone is really using artificial intelligence. Thanks to our investment advantage and our learnings also from Jooli, we are in a great position to really implement artificial intelligence and really use it to become more efficient to decrease costs and to understand customer preferences and to drive our sales.

Personalization. So artificial intelligence gives us the basis to create a fully personalized shopping experience in all digital sales channels, inspiring our customers with products that are perfectly adapted to their preferences. Cross-border e-commerce meaning that managed out of Berlin, we are developing projects to significantly increase our market presence and visibility in sales in all European countries.

And finally, we believe that a massive change in e-commerce will take place in the upcoming years in the field of virtual shopping. So it will take some years to get there but the combination of move picture, 3D and the immersive virtual experience will not be less than a revolution of home shopping.

In summary, with #juwelo100, we are laying the grounds for profitable mid- to long-term growth for our core jewelry business. So let me give you 2 examples of our growth projects. Example number one is our new mobile shopping app. The app combines all 5 strategic development areas I just presented to you. You probably know we already have a mobile app for our jewelry business. So your question might be what will be different about the new app, where does the sales potential of over EUR 15 million come from?

The existing mobile app has one significant limitation. It is designed as a second screen app for existing linear TV customers to improve the bidding and buying process, makes total sense to have such an app, but it is not designed for new customers or existing customers that do not watch our linear live shows in TV.

Our new app is designed to attract both existing customers and new customers. We will be able to market the app also separately from our Live TV standalone, thus increasing the potential target group significantly. The idea is to provide an interactive, social and fully personalized video shopping app for jewelry. It will put a high focus on inspiration, make use of the camera of a mobile phone for augmented reality features and use the sensors of the mobile form for virtual shopping experiences.

There will not be not one huge release in a couple of years, but we will develop the feature step-by-step and have releases month by month. And one important release will take place in a couple of days and it's the launch of the new app technology, Flutter. So the same development framework we're using for Jooli. So once again, here, we have an example for the knowledge transfer between Jooli and our core business.

Example number 2 is AI translation video shoots. So artificial intelligence is making huge progresses in translation, text to speech, lip sync in the videos, et cetera. You might have already seen some results of this AI tools on YouTube or on TikTok, where you can, for example, see politicians speak languages. They actually don't speak. or say things they actually never said. The quality of these deep fake videos is impressive. Just take a look at the common section of TikTok and YouTube on these videos. Many of you think that this is reel and that these people have actually set this.

If we now combine this potential with our high-quality video shopping material and our game robots, so our tool for automated shopping shows, we will be able to leverage our video shopping content and create international shopping shows at a very low production cost.

Using then OTT, over the top, we can then stream these shows to all TVs connected to the Internet. And here, we see a huge potential also for cross-border commerce. Our plan is to start the shows in France where we already have static webshop and static web customers, which, of course, is a huge advantage because then we can use existing data on customer buying preferences to improve this.

I will now hand you over to Wolfgang for the presentation of the developments of Jooli.

[Wolfgang Boyé, executive]

So as we have already said in the half year figures, we have launched JooliPay as a payment mechanism for the Indian market in August 2023, that has happened just as planned. And that is a very significant milestone in the further development of Jooli just because we have now brought the checkout process that used to be on the merchant's website into the app, which creates a much better shopping experience with users because the users register once in the app. And with this registration, they can purchase products on each of the channels that are on the platform.

We have discussed this with the merchants. Some merchants were -- most merchants were very happy with this option because they know that this will increase buyer conversion significantly. Some merchants said that they're unhappy about this because they lose control of the traffic of the users and therefore, have decided to off-board. But in total, we are happy to record that out of the 1,550 merchants that we had end of September 2023 on the platform. We still today have got the same amount of merchants.

Roughly 200 merchants have been added as new content to the platform and 200 others have decided that they would like to lease the platform. So we have a stable volume of content, which is a good basis for growth into 2024.

The third thing that is important when looking at Q3 is that together with the introduction of JooliPay, we have also completely overhauled the onboarding process of the new users so the way new users get customed with the app.

In the past, you were downloading Jooli, Jooli just played out the first video and then you could swipe through the content now. We have a very short 20-second onboarding process during which we asked the customer to provide us a little bit of data about him or herself, the age, the sex and also some of the product preferences. And that allows us to tele made the video feed that we delivered to new customers from the very beginning. We do not have to wait for the algorithm to determine what the customers actually being at.

At the same time, we've also changed some of the graphic designs in order to make it more accessible both of these features. So the onboarding process and also the design are the outcome of a very intensive focus group analysis that we did all of cross India in the last quarter where last users and nonusers of their view on the app and how they would want to -- want us to change the app and order to use the app.

And into Q4 2023 and also going into 2024, there will be basically 2 core focus points in developing the app, which is -- comes from the relationship between customer acquisition costs and customer lifetime value.

Obviously, at the moment, the existing customer lifetime values were based on actual numbers of how much money people have spent in the [indiscernible] and then the customer acquisition cost and just because we have only 2 months of buying history with the customers. What we use in this respect is we use what we call the projected customer lifetime value. So we look at what do you expect that customers will pay in the app over the course of the coming years and we compare that with our customer acquisition cost.

And this equation will have to be optimized in 2024 until we will actually make money on the customers probably after the second purchase of the customers in the app and therefore, we will have reached a perfect scalability in the Indian market and each individual market in euro that we spend in India will produce more contribution margin than we actually spent.

So the customer order value volume that we have generated after launching Jooli has been growing extremely fast. We generated a total of 16 orders in September and 202 orders in October. So it has scaled very significantly. We also dropped the sales price on first orders. And this is here in Indian rupees because we started to work very heavily with discounted products that we offer in order to lower customers into the app, which is not unusual that you try to make very significant offers so that people start to use the app. And you can see that this has resulted in the average order volume, the first purchase to decrease pretty significantly from INR 500 to INR 135.

At the same time, you see that the share of discounted products decreases with repeat purchases. So with the second purchase, it's already down to 63% of discounted products and with that pressure, it's already way below 50%. So the app is growing on the customer order volume very fast. At the same time, we are at the moment, and you will see that also when we go to the next slide in a second. And we're very cautious with the amount of money that we spend for marketing and we still have a lot of optimization to do, and we are not really keen to spend huge amounts of marketing euros that do not translate directly into sales prior to have a completely perfectly optimized sales mix, which is probably going to happen somewhere in Q1 2024.

So going into new customer acquisition. We have had 12 new customers in September 2023 and 148 customers in October 2023. So also here, we see very significant growth and obviously, will come from low numbers, and we will have to continue to see this very substantial growth in many quarters until we have reached profitability in the Indian market. But the direction is right, and we see more and more the situation in which we are able to attract customers at better prices. You can see that in September, we paid EUR 700 for a customer, which was also a consequence of the very low budget.

And then in October, that went already down to EUR 70. You may recall that from the user acquisition cost that we had throughout the beginning of Jooli in 2022 and also the first half of 2023, that over the course of time, we have been able to continuously drive down this figure and we expect that the same is going to happen with customer acquisition costs in Germany and in India.

As you can see on the right side, which is very promising is that our user retention after launching JooliPay has been able to increase even further. We are now at a 16% day-on-day user retention and also the impressions per user. And if you compare the quarters and have continued to go up, and we were in the first quarter at a figure of having 14 videos watched on average per user and now we're at 27 and we see that in November, this figure is going to -- is increasing even further, which gives us the confidence that the AI-based video feed that we generate to our users and tends to get better and better, so plays out more relevant content and therefore, keeps the users longer on the platform.

And that is the core points that we can say about Jooli. Obviously, we're going to continue to improve the platform, and we see that based on the numbers that we have seen so far that in Q1 2024, we'll be in a position to really start accelerating the growth of the platform in order to come to relevant numbers and also to a revenue contribution of Jooli [indiscernible].

[Riad Nourallah, executive]

Good morning. Let's come to the financials and see the overview. As Florian already pointed out, we clearly outperformed the market and are at revenues at EUR 11 million, generating a growth of 1%. However, despite of the economic environment, we realized a decrease in gross profit by 8%. Nevertheless, we achieved to be profitable and to reach an adjusted EBITDA of EUR 0.5 million.

Let's take a look at the 9 months performance. Overall, outperforming the market so a slight decrease in revenues concerning the economic environment. I think it's a very good result. Gross profit going down. So we see a shift in the product mix and of course, the impact of inflation and overall adjusted EBITDA at EUR 0.6 million. We implemented a cost-saving program, and let us take a look at the major results. Overall, we realized a decrease in costs by EUR 0.7 million, which were pointed out by once on the decrease of cost of reach and personnel costs.

Let's take a look at the key performance indicators. And so overall, we can realize that we are on track with our guidance. We realized a positive adjusted EBITDA right now at -- for this quarter at EUR 0.5 million for the 9 months performance of EUR 0.6 million. The overall point is the increase in active customers. This is the key metrics we have right now, which we want to really like to line it out. We see a clear increase in active customers. And as Florian already said, a really strong performance in new customers, especially for the web, where we grew by 45%.

Outlook. In fact, we see well like a high volatility driven on the one hand by the war in Ukraine and also by the war in Middle East. So we have really like a cautious approach. We shall not forget that in the last year, we had 2 months impacted by COVID. But overall, we confirm our forecast so we say we expect sales to develop between a mid-positive and negative single-digit corridor. The webshop is expected to grow. Adjusted EBITDA is to be expected in the low single-digit million range. Overall, the gross profit margin is to be expected at over 50%.

[Florian Spatz, executive]

This was our Q3 2023 financial earnings call. The presentation, thanks, many thanks. I would now like to open the Q&A session, and it would be great if you could, as always, use the Zoom function of raising the hands so we can then give you the microphone. So if you have questions, please raise your hand and -- I see the hand of Mr. Frey.

[Joerg Frey, analyst]

.

Great. Well, thanks for the elaborate presentation, first of all and that would go on one by one if it's okay and start with the -- well, the existing Juwelo business. I think you mentioned the gross margin decline in the quarter. As all the decline of average selling prices per item. Is this driven by a more promotional environment in general? Or are you running some clearance activities? And to what extent do you think is -- well, is it more a clearance-driven quarter where we should see some upside in gross margin in the fourth quarter or anything specific, which we should point out here?

[Florian Spatz, executive]

Yes. So yes, of course, it's -- we see this as a temporary effect, mainly caused by the customer -- by the current customer reticence. So if we look at what the [indiscernible] publishers regarding customer buying preferences, it really has to do with the trend that all customers have. They want to buy something, but they want to spend less. So we see a shift in all customer segments that we have towards special offers, towards jewelry with slightly lower price points.

I -- yes, we focused on marketing promotions in order to do what we can to improve the revenue, but I think it's temporal effect. And as I said, when looking at the revenue per customer, we are currently not seeing a typical revenue per customer. Usually, it's much higher. And I'm not comparing it to the COVID years where, of course, we saw a very high customer revenue. I'm comparing it to 2022. I could also compare it to an average of the last 5, 6 years. So we have all reasons to believe that the revenue per customer and also the price points of items sold will increase again.

[Joerg Frey, analyst]

Yes, totally understood. And I think promotions are in the order of the day and whether 50 attitude of consumers. I totally agree. On a positive factor in the quarter, I think your customer acquisition cost declined double digit. Is there anything specific that you can point out there? Do you consider that sustainable? Or is it more driven by our [indiscernible] pricing of bidding for adverts or anything like that?

[Florian Spatz, executive]

So we believe that the marketing optimizations we did are sustainable and will also help us in the future. Of course, it always depends on the competitors on how much competitor spends on the different marketing channels. Probably in Q3, some competitors spent less because of the economic situation and because of their revenue declines but at the same time, improvements, we do, for example, on the checkout page, on our landing page, so improvements that help us to make more out of the traffic that we get improvements that will help us also in the future. So I think that we can also expect to continue to see a significant new customer growth in the future. I don't think it's just a Q3 effect.

[Joerg Frey, analyst]

That sounds promising. And while the momentum certainly speaks for you. Then going a bit to Jooli, probably, first of all, can you explain me a bit -- I didn't get it, you increase the number of discount orders in October substantially and this drove growth, if I'm -- if I have understood it rightly. To what extent can you actually influence discounting given your relatively low take rate? Just a bit of background here would be helpful.

[Wolfgang Boyé, executive]

Yes. We took in the beginning kind of the majority of the ad campaign that we ran on Jooli was a generic ad campaign explaining how Jooli works and what you can get out of Jooli and already in the beginning, we started to experiment to -- hang on, I'll also give you some video. With such to experiment with promoting specific products. So we went to certain merchants and said, let's promote your X product on the platform. And we agreed with the merchant to reduce the price significantly on that product in order to promote it on the platform. And we realized that the traction that we could get through that is much bigger than the traction we could get through the generic campaign.

So it is essentially an approach that is similar to what example [indiscernible] in Germany when they launched their grocery home delivery platform and they gave 20% to 50% discounts on the first order to bring people into the app. And that is essentially what we're doing. And the important factor is that after the first purchase, we need to make sure that the increase of non-discounted product goes up so the people after the first purchase get used to spend through retail value amounts of money on the products.

[Joerg Frey, analyst]

Okay. So it basically means you found a way of your merchants basically subsidizing customer acquisition costs?

[Wolfgang Boyé, executive]

Yes, we get that half and half. We split that half and half.

[Joerg Frey, analyst]

Sounds pretty clever. And secondly, can -- I'm not sure if I got the indexes of the numbers, right, in terms of total customers -- was it only -- was it 148 orders in total? Or did -- what's the precise number?

[Wolfgang Boyé, executive]

That is kind of -- unfortunately, since we have only launched Jooli in Germany, and we already have a substantial jewelry business. Jooli will have to live with the fact that it's way smaller than Juwelo and also the numbers are way smaller. So this is -- the total order volume has been up by roughly 15 fold from September to October, but still it was a total absolute order volume of 202 orders.

[Joerg Frey, analyst]

Yes. Okay. So I got it. I was a bit confused because there was too much in India.

[Wolfgang Boyé, executive]

Not -- the only difference is on this page, and you have the numbers in Indian rupees. And on the following page, you have the advertising numbers in euros, which is due to the fact that we run this through the worldwide Google and Meta ad platform and we spent everything in euros there. And this is how we get the numbers out of the platform.

But you have to keep in mind that in the whole month of September, we spent only EUR 5,000 in advertising money in India. And in October, we still spent only EUR 10,000 in advertising money. So this is like -- it's a very low number, and that's number that we deliberately chose because we would like to first optimize the marketing mix until we increase that number.

Obviously, if you took into consideration the volumes of advertising spending that we do in Germany kind of the growth rates would be way higher the payback period. So the time until we get the advertising money back would be too long. So that, at the moment, is something that we're a little bit cautious about. But we believe that sometime in Q1 at the latest in Q2 2024, we'll be able to profitably scale this and then capital growth rate will also be higher.

[Joerg Frey, analyst]

So in essence, actually, your daily user retention, which improved nicely is economically probably much more significant than overanalyzing the commercial metrics of October?

[Wolfgang Boyé, executive]

Yes. It's -- we will have to continue in this tenfold metric for quite some time until we have substantial numbers, but that is not surprising for a business that has just been launched.

[Joerg Frey, analyst]

No criticism. I appreciate the transparency, but I just want to get all of my investors that we should not over interpret the number of such a small scale. Well, thanks a lot, and I'm curious to get the further results.