How does Chinese e-commerce platform Yunji to break through its development limitations

The outbreak at the beginning of the year made the global economy shrouded in a long "winter". In the first quarter, the vast majority of companies experienced varying degrees of decline in performance, and many companies even turned profits into losses.

Yunji, a Chinese membership-based boutique e-commerce company announced that it has released its first quarter 2020 financial results before the market opens on Wednesday, June 3, 2020. Judging from the financial report, although Yunji's revenue has been affected somewhat, the number of GMV and trading members is still steadily increasing, and continued the profitability of the previous quarter.

Under the surprise attack, it is not easy to hand over such a transcript. Nowadays, although the epidemic prevention and control situation has improved, the downward pressure on the economy and the fierce competition in the e-commerce industry make the future of Yunji still full of challenges. After the first quarter, how will it make money in the context of the "post-epidemic era"?

Q1 financial report keywords: GMV, gross profit margin, profitability

The financial report shows that GMV of Yunji increased from 6.8 billion yuan in 2019 to 7 billion yuan in the first quarter of this year, and continues to grow. The GMV related to the mall business reached 4.1 billion yuan, compared with 300 million yuan in the same period last year. In terms of trading members reflecting the activity of the platform, as of March 31, 2020, the number of trading members in the past 12 months reached 11.8 million.

In the first quarter, according to Non-GAAP, the adjusted net profit was 26.1 million yuan. In the previous fourth quarter of 2019, the adjusted profit was 25.3 million yuan. It also means that Yunji has achieved profitability for two consecutive quarters, further proving its profitability to the capital market.

From an operational perspective, in the first quarter, Yunji's operating costs was 1.148 billion yuan, which declined by 58% from the same period in 2019; total operating expenses was 522.9 million yuan, a drop of 20.1%.

It is worth noting that during the special period, Yunji still maintains a stable profit margin. Chen Chen, chief financial officer of Yunji, said: "Our GMV in the first quarter has been improved, and compared with the previous quarter, we have obtained a higher commission rate in the mall business. Despite being affected by the epidemic, our commodity gross profit margin increased from 19.3% in the same period in 2019 to 30.4%." It also reflects the improvement of Yunji's overall operating efficiency.

By improving operational efficiency, what is the secret of Yunji's continuous profitability? After the epidemic fades, can it continue to write growth stories?

Social market and differentiated supply chains

In the social e-commerce industry, Yunji is the earliest company to enter the field.

Through the mining of social traffic, Yunji stood on the Nasdaq in May last year. Today, Yunji has been on the market for more than a year and has achieved two consecutive quarters of profit. In addition to these, other phenomena in the industry are also worthy of attention.

With the peak of traffic dividends, the increase in customer acquisition costs has become an indisputable fact, and social traffic has become a new market that various e-commerce platforms are scrambling for.

In January 2020, Alibaba's Taoxiaopu was officially launched; as another giant in the e-commerce field, JD.com also frequently moved to launch social e-commerce products such as Jingxi. The joining of Chinese e-commerce giants has made the membership e-commerce track created by Yunji more competitive. However, the addition of giants is enough to prove the attractiveness of this track.

Not long ago, American social media Facebook also announced a high-profile entry into e-commerce - after all, it has rich social traffic on hand. "We start to officially launch the Facebook Shops (e-commerce) function today. This is to allow more SMEs to build their own shops through the Facebook platform and use it to sell directly to users on the platform." Facebook founder Zuckerberg said in an article.

As more and more players enter the game, the key to winning or losing lies with the supply chain. To build a differentiated supply chain has become the focus for Yunji to break through.

In the financial report, Yunji founder and CEO Xiao Shanglve said that Yunji is also grateful for the emerging brands and joint venture brands that cooperate with the company. "The support they give us not only helps us strengthen our supply chain in the face of the macro-environment, but also encourages us to continue to move forward and differentiate the platform through continuous supply of high-quality products."

Socialized products and unique product matrices provide a moat for Yunji's differentiated supply chain strategy.

Yunji's market value is underestimated

Multiple factors such as the spread of the epidemic worldwide and the situation of international trade have superimposed, which has greatly increased the uncertainty of the economic environment. The fermentation crisis of Luckin Coffee has triggered a trust crisis in Chinese companies. For Chinese companies listed in the United States, there is a certain degree of negative impact.

Since the 1990s when Chinese companies started to land on US stocks, they have gone through nearly 30 years of history. Up to now, there are about 269 Chinese companies, with an overall market value of more than 1 trillion US dollars. For many Chinese companies, including Yunji, overseas investors do not have enough knowledge about them, they are not familiar with the business models of Chinese companies. So it is difficult to obtain high valuations. Coupled with the crisis of trust in the Chinese companies caused by Luckin Coffee and others, some Chinese companies suffered "valuation discrimination."

Let's look at Yunji again. The member e-commerce model created by Yunji is placed in the context of Western culture and requires investors to have a longer cognitive process. Coupled with the impact of the above multiple factors, even if consecutive quarterly profits have been achieved, the market still has "valuation discrimination" against them.

As of June 5th, the market value of Yunji was US$771 million. Judging from the performance of Yunji's continuous development, such market value will inevitably have a big gap with Yunji's actual value.

In order to get rid of this "valuation discrimination" situation, it is necessary to allow investors to complete basic market education and depend on the recovery of the general environment. At present, the entire capital market is in a state of cautious investment with cash as the king, and the stock market is volatile. However, the performance of the stock price can be seen as a whole. In addition, the current overall valuation level of Chinese companies is relatively low, and the long-term investment value of Yunji has become increasingly prominent.

It is believed that as the global epidemic situation is gradually brought under control and after the resumption of production and production is basically restored, market information will also be boosted. The improvement of the general environment will also restore Yunji's market value to a more reasonable range.

This is a article from WeChat official accounts MeiGuyanjiushe(ID: meigushe), translated by Chris Yuan.