ContextLogic Holdings Inc. (LOGC) Earnings Call Transcript

All right. Good afternoon, everyone, and welcome to Needham's 25th Annual Growth Conference. My name is Anna Andreeva. I'm a senior analyst covering consumer e-commerce space for the firm. And next up, we're very excited to have the management team from Wish. We have Joe Yan, CEO; and Vivian Liu, CFO and COO. Welcome, guys.

Thank you. It's great to be here.

Thank you…

Perfect. Perfect. [Operator Instructions]

So with that, let's start off. Let's start off with Joe. Maybe for those not familiar with the story, I think it would be helpful to provide an overview of the business, the value proposition of Wish to consumers. Would love to talk about the key target customers, the key categories in the business and how have those evolved. And I know you just joined the company as an interim CEO several months ago. Maybe talk about the early actions you have taken to strengthen the business.

Got it. Yes. First of all, thanks, Anna, for having us at the conference. Nice meet you. As you mentioned, right, so I joined Wish in last September, right, a few months ago, right? So it has been a very exciting journey for me, right? And actually, I started working very closely with our management team on improving our daily operation and also kind of trying to define, actually, the strategy for the Wish, right? So in this year 2023 and also beyond, right? I think for the people who -- those who may not that be -- that familiar with Wish, right, so we found it back in 2010, this company has been over 12 years old, right? So -- and we are a global e-commerce marketplace, right, connecting the global merchants, right? So we have 250,000 merchants from global and with, actually, the consumer, right, from over 60 countries, right? So we're pretty much a marketplace business model, right? And from the day 1, actually, we found this company and we pivot to an e-commerce marketplace, right, so we always say there are 2 main failures in current existing e-commerce model, right? One is the failing in supply, right; another is failing in the shopping experience, from where, actually, we can see from the traditional e-commerce platform or marketplace. What do we mean here, right? So first of all, right, so a lot of e-commerce platform, traditional marketplace are focusing on providing the branded product, premium service, premium product, right? So they are more kind of on par with the traditional off-line retailers, right? And then we do think that there is a huge space, right, for, actually, the supply and also the demand there, right? So let's say, not necessary for the customer to purchase every item from the branded goods, right? So they also can find, actually, the value for cost and the alternative, right, from the supply, right? So this is something definitely we want to kind of leverage our cross-border, business model, to see how, actually, we can utilize this advantage to find out the supply, right, to kind of fit those demand right? So this is one thing. Another thing is about the shopping experience, right? So most of the e-commerce platform are pretty much focusing on the search, right? People come to the platform with a very strong intent and they know, actually, what they want and then they search the products on the platform, right? But we do see, actually, a lot of customers, actually, they don't know, actually, what exactly they want, right? So they come to the e-commerce app or platform, right? They're trying to find some kind of fun stuff, right, interesting stuff, right? So this is the thing, actually, from the day 1, we're trying to build this inspirational shopping experience, right, to provide the more fun experience to our customer, rather than just kind of direct to the search, right? So this is a thing, I think, also help us to really kind of bring our vision, right, so which is to unlock the e-commerce for the underserved, right? We believe they are the underserved segment for both consumer and merchants, right? So this is, actually, the value proposition for us and also the key value we want to serve, right, in this kind of e-commerce sectors, right? This is, I think, at the very high level, the thing, actually, where, actually, which can form and also, actually, how we kind of position ourselves, right? And with this vision, right, and you can see, right, so what, actually, make Wish really unique, right? As what I said, right, so I think, first of all, it's about the shopping experience, right? The 90% of our kind of users we have on our mobile app, right, from the day 1, we pretty much emphasized that we are a kind of a mobile -- kind of driven mobile-first company, right? So -- and also the majority of the transaction and also customers we have here also on our platform, right, so on browsing and also the inspiration kind of shopping experience, right, rather than this is a search, right? So this is something that brings us a very, very unique kind of value, right, to the consumers, right? And you also kind of asked about the category, right? So the key focus here, right? So I might talk a little bit more later. But in terms of the category, right, this is very important. As you may know, as a marketplace, so definitely, right, you can provide a very wide variety of the products or selection to the customers, right? But by focusing on the certain segment of the customer, definitely, you need to make sure, actually, you have a focus on the category, right? This is the thing actually, I think, going forward, actually, we're kind of trying to reiterate, emphasize the focus here, right? So we're trying to build a stronger narrative around home and life, right, to see how much we can serve those kind of a customer by providing the value for cost of products from 4 main categories, right? First one, the non-trendy fashion and the electronics, home and hobby, right? So this is the thing, actually, with the stronger category management capability we built internally at Wish, right, we really can leverage the data and also leverage, actually, the understanding of our customer, right, the needs, right, in paying and organize structure our kind of merchandise better on our platform and to serve our customer better, right? So this is the thing, I think, pretty much, actually, the company is focusing on and also the value proposition, right, so come to Wish, right? And since I joined in September, right, So I would say I'll give the credit to our current management team a lot, right? So in the past 12 to 18 months, right, the team really spent a lot of hard efforts, right, on improving the customer experience and also deepening the relationship of the merchants and also focusing on improving the operational efficiency, right? And we have seen a lot of green shoots and positive sign from those efforts, right? And this is something definitely we will keep on kind of focusing on those areas and see how, actually, we can really kind of turn around this business, right? And the one thing that we want to call out, on top of those things, right, so I think the product evolution is one of the key things, right? So we focused a lot, right, so in the past and also I think moving forward, this is going to be -- continually will be our focus for sure, right? So back in 2014, early days, right? So we are pioneer of the personalization and who is kind of driven kind of a company, right, to give our consumer a really inspirational experience when they shop on Wish, right? And coming to today, we keep on thinking, right, so what would be the evolved kind of inspiring -- inspirational shopping sort of we can provide to our customers, right? So this is an ongoing effort, but we do expect in 2023, right? So we can see a lot of kind of development improvement on the cost side, right? They continue our turnaround journey and also kind of continue to help us to drive the better customer experience there.

Okay. No, that's very helpful. How would you describe your core customer? And curious, what is your average price point? You mentioned value and the company's focus on value several times, I'm sure that price point does differ across categories. But just curious how you view that.

Well, so the show answer here is definitely our focused customer group, our customer segmentation is the millennial and the Gen X mid- to low-income households, right? So this is very clear, right? So I think those, actually, group of customers or segment of customer, right, so -- are pretty much, actually, what I said, just like the underserved segment of the users, right? So we do see, actually, they have their kind of needs, right, on some of the, let's say, purchase, right, so from the certain category. That's, actually, where, actually, our category strategy came from, right? So I think this is very clear. And this is a clear customer persona and profile for us, right? Yes.

Okay. And on the average price point?

The average price, well, varies by different categories, right, well, as you said, right? So in certain category, let's say, in the fashion, right, so non-trendy , right? So this is something definitely, if you compare to the branded products, right, so that's something, actually, definitely, we have the advantage there, right? And as again, right, I think we are focusing on the value for cost, right? So -- and there's something -- the category theme within our company, right? So we do kind of those kind of benchmarking and also do the pricing kind of analysis, right, on a daily basis to make sure, actually, our offer, our kind of merchandise on the platform will be priced competitively enough. And on the other hand, we are a very data-driven company, right? So actually, we kind of learned a lot from the past kind of a customer, their purchasing behaviors and also a lot of kind of benchmarking study as well to make sure, actually, we kind of price competitive.

Okay. Okay. Okay. No, that sounds good. Demand towards discretionary categories, of course, has been pretty challenging this year, but the value price points that which has arguably puts the company in a pretty good position. So maybe talk about what kind of trends have you seen in the business? Anything to call out -- and anything to call out about the holiday specifically? And talk about how do you approach '23?

Yes, I can join you there.

Yes.

So I think the inflation has been [ backward-ing ] throughout 2022, right? And it's probably, generally speaking, a headwind for our e-commerce business or industry in general. And we are not [ unique ] into that. And when you think about the -- from a customer behavior standpoint, when you inflation is high, people prioritize their daily essential purchases and -- which leaves a lower discretion spend for customers in general. And in that environment, people -- most -- some of them start to trade down on price, meaning finding lower or cheaper alternatives, and that means that some customers will come to us. So you could argue that's potentially a tailwind. But at the same time, because the discretionary level, income is getting lower, people start to be more price-sensitive, especially in the customer segment we serve, which is mid- to low-household income level, they start to cut back on discretionary spend. That's kind of a headwind to us. And Wish sells discretionary items, not daily essential stuff. So I think net-net, I'd probably say it's neutral from the -- macro environment is neutral to slightly negative potentially to us. And we are -- throughout 2021 and 2022, we have been very focused on the core operations, right, and the customer experiences and the merchant relationships, including product quality, listing quality, shorten the shipping times. So everything was very much, very much pivoted around customer experience and improving the satisfaction user NGS score. And we have seen amazing, amazing results in that. And I think the NGS score has been steadily improving since 2021. Our refund rate and all the customer issues have dropped, like, significantly, 34% and 68% by the end of Q3. So all of that tells us that the customers really enjoy the value proposition and what we have seen and experienced with Wish. So that's the -- really the -- the kind of the key OKRs we monitor very closely throughout 2022, right? And so long -- we have seen, despite the challenging macro environment and the team has been very laser-focused on execution, our turnaround strategy and it's been paying off. The green shoots Joe mentioned, those are many, and we share them very constantly in our earnings call. And going forward, you mentioned 2023. Going forward, I think the unit economics will be what we focus on the most. So that's the most important OKR we focus on. And there are different levers. The same levers still apply such as shipping time and marketing efficiency, cost efficiency, all that still applies going forward. But we will also spend a lot of time on 3 things, first, the conversion rate, right? And when a user come to our -- at our site, we want to convert them into a buyer very effectively or efficiently. And the second one is retention, repeat purchase rate. So once you become a buyer, we want you to come back more often, right, and lifetime value, it improves the lifetime value. And the third is basket-sized building, like transaction value. Like every time you buy, we wanted you to buy a selection, not just one single product. So there are many, many initiatives going behind all the 3 OKRs in 2023. And that coupled with continued improving cost efficiency, we will hopefully, and we are pretty confident to see the improvement between the economics and the continuous improvement in the cash flows.

Okay. That's great. I noticed that last quarter, the business did see sequential improvement in monthly users, which was great. I think that's first growth since early '21, for the business. So it sounds like some of the initiatives are starting to -- starting to gel. So can you talk about, specifically, the drivers there? And how should we think about continued sequential improvement in those metrics as we get into '23.

Yes. I think the -- it was great to see the sequential growth in Q3, right? And keeping in mind, I wanted to highlight, we achieved that at a very, very, very reduced advertisement level. And Wish used to be an amazing marketing machine and a lot of the GV growth and user retention and acquisition and conversion was really kind of was the marketing machine-type, right? And now we spend, I think, maybe 10% of what we spent -- what we used to spend at a peak advertisement level in the past. And at this reduced level, when we achieved the sequential growth. So that tells us everything we have done in the past 1.5 years started to pay off, right? And the people came to us not because they saw attractive advertisement campaign. They came to us because they liked what we have, the shopping experiences and the products they purchased and the price they paid, right? They like what we offer as value proposition. So that's very important to call out. And what drove that and everything that Joe mentioned, I shared earlier, listing quality and broadening experiences and we are a discovery-based shopping platform, not search-based, right, and that means people need to have fun when they are on the platform, right? And they came to Wish with no clear ideas what they want to buy, but when they see, come across amazing interesting fun products, they are converted into a buyer. So their experience on the platform has to be very engaging and entertaining. And the third piece is, I mentioned the listing quality and broadening experience, so the third piece, I would say, is the delivery time. And the pain point, it used to take the average of 4 weeks for the product to arrive because we are a cross-border business. A lot of merchandise came from overseas. And that we heard it loud and clear from the customers that the delivery time is a big pinpoint, right, and the per dollar retention and the conversion. And we really doubled down on the delivery logistics efficiency, and we improved the time-to-door by 5 days last year and the on-time delivery rate have improved from 80% to 92%. So that, combined with everything else we have done just like really got our NPS score continues to increase. So I think that's why people come back to us more organically and delivered that what we saw in Q3, which is a sequential growth in a very long time. And going forward, we will continue improving on those, right? And the listing quality and the browsing experience, as Joe mentioned, product features and get even better with our logistics services. But on top of it, we will also start to really invest in conversion rate and retention, not -- improve conversion rate, retention rate and the basket-size building, and there are a lot of [ cognition ] going into those metrics improvement for 2023.

Yes, just want to maybe echo a little bit on Vivian's points here, right? So I think our 2 main drivers, actually, really kind of prove our hypothesis, right, and keep, actually, as a very kind of strong confidence, right, on, actually, the direction we're heading to, right? So one is just, as Vivian mentioned, it's about the merchant and the product quality. This is the key, right? So previously, I think we kind of stopped a lot on maybe the -- let's say, the bad customer experience caused by, actually, maybe the poor quality of the product or poor quality of the merchant, right, so this is something dampening, I think, as the key area, right? So I think in the past 12 months, I think -- spent a lot of efforts on seeing how, actually, we can kind of really improve this piece, right? And along with those improvements on the merchant side, we built a merchant kind of assistant, to really kind of incentivize the good behavior, right, on our platform. And we do see, actually, the customer experience got improved, right, and a lot of metrics as we go out, right? So this is a very strong proof of the concept, or proof of the, actually, hypothesis, right, so -- we made here. And another thing, by nature of the cross-border e-commerce business, right, we're trying to find, actually, the balance about, actually, the delivery time, right? So this is something, actually, Vivian also mentioned, right? So that's something, actually, if we focus on some of the top market, right, we know, actually, what will be the real kind of a reasonable kind of door-to-door, time-to-door delivery time, right? We can offer, by balancing, actually, the time and also the cost, right? And this, actually, gives us also a big upside there, right? And from the customer feedback, right? So we do see, actually, they like, actually, our improvement on the list as well. And they, actually, help us to kind of get improved the customer retention and the satisfaction as well, right? So I think this is -- I think is something I just want to reiterate a little bit and to you echo Vivian's point here, two main drivers, right? So we do see this average from last year. Yes.

Okay. Okay. No, terrific. You mentioned driving retention and loyalty in the business and repeat purchase. Just will be curious to hear more about some of the KPIs in the business. What is your repeat rate? I'm not sure if you disclose that. And directionally, how have those KPIs changed over the last couple of quarters as you've been really affecting the change in the business?

Yes. So we see our retention rate and the conversion rates kind of start to improve, right? And keep in mind, in the past, retention conversion was also achieved through ad spend. So we spend dollar to convert the line, bring them back. And again, now with the much, much less ad spend, and we do that through our bank proposition, right? And -- but this -- we still see -- we start to see the trend going up and -- which is a great sign for us. And I think a couple of -- there are many initiatives we continue to invest into to improve conversion retention. And just give me -- give you maybe one example. And we start to do merchandising campaign. When are these merchandising campaign, it's like holiday -- major holiday set out, Black Friday. And in the past, Wish doesn't really have a very strong muscle in merchandising, and we started doing that the past holiday season with close -- through close partners, with our key merchants and we came forward with a lot of merchant on promotions. It was very successful first season for us, and we continue to fund through our merchandising machines going forward. And essentially, instead of spending tons of dollars on Google, Facebook, and we start to give the benefit directly to the customers and giving them -- making their shopping experience even more fun and also even better value for price going forward. So we came back, we will come back more organically. And the other investment we make is, for instance, supply and shipping, right? And then in the past, there are a lot of customers come to the site and they buy one item and they pay maybe like about the same price on the shipping is what we pay on the product side, and that's what they do. But going forward, we encourage them to start building the -- to build more basket size and buying a selection of products. And because we -- when we raise a threshold, it will be flat shipping or even free shipping, and that's another thing we do to increase the conversion and retention. And, again, we're heard loud and clear, shipping cost is a competitive cost. So those are just 2 examples on what we continue to invest in, in terms of initiatives and the product features to improve conversion retention going forward.

Okay. Okay. Terrific. From a geographic standpoint, I believe U.S. -- North America, rather, and Europe represent roughly 80% of your business. Just curious if you could talk about what kind of dynamics are you seeing in those regions. And how do you view the opportunity in the rest of the world?