Release Date: November 14, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Allegro.EU SA (LTS:0A5O, Financial) reported a strong GMV growth of 12.3% year-on-year in Q3 2024, outperforming the overall retail consumption growth in Poland.
- The company successfully completed its migration to a product-based view of the marketplace across all markets, enhancing operational consistency.
- Advertising revenue grew robustly by over 30% year-on-year, significantly outpacing GMV growth.
- The Smart! user base continues to expand with double-digit growth in annual subscriptions, supported by a successful brand campaign.
- Allegro.EU SA's logistics operations have seen substantial progress, with Allegro Delivery services growing sevenfold in volume over the past year.
Negative Points
- The international segment, particularly the Mall segment, continues to face challenges with a GMV decline of 34.6% year-on-year due to significant SKU reductions.
- The company anticipates a larger adjusted EBITDA loss in the international segment for Q4 2024, driven by inventory sell-offs and reduced margins.
- Shopping frequency in international markets, especially in Czechia, is not increasing as quickly as desired, impacting GMV growth.
- Increased marketing expenses are expected in Q4 2024, partly due to heightened competition in Poland, which may pressure margins.
- The transition to a common tech stack across international operations is ongoing, with cost savings expected only in the medium term.
Q & A Highlights
Q: Can you elaborate on the incremental costs forecasted for Q4 in Poland, particularly in marketing, and whether any costs are considered one-offs? Also, how does inventory shrinkage at Mall contribute to the expected international loss?
A: The increase in marketing spending will be significant in Q4, impacting costs. Delivery costs will also rise as a percentage of GMV. SG&A spending will increase slightly due to the end of the Fit to Grow project. The take rate tailwind is minimal, affecting margins. For international, inventory sell-offs are somewhat one-off, with extraordinary discounts recorded as restructuring costs. The transformation journey aims to reduce fixed costs tied to legacy assets, with savings expected in 2025.
Q: Given the lagging frequency and ASP trends in Czechia, what makes you confident that higher marketing investments will boost frequency? How does this influence your plans for further market launches?
A: The focus is on converting existing customers into regular shoppers through incentives and Smart! program enhancements. The current situation doesn't affect expansion plans beyond the six-country perimeter. Operating in all six countries is crucial for cost reduction and eliminating redundant operations, as it allows for a single tech stack and leaner organization.
Q: How do the unit economics of Smart! users in Czechia and Slovakia compare to Poland, and how important is Smart! expansion in boosting frequency?
A: Most Smart! users in Czechia and Slovakia are on free trials, encouraging trust in Allegro's marketplace. The unit economics for domestic deliveries are similar to Poland, but cross-border costs are higher. Over time, more domestic merchants will join, improving profitability. Smart! expansion is crucial for increasing frequency and subscription purchases.
Q: Are the increased marketing costs in Q4 related to increased competition in Poland?
A: Yes, partly due to competition. New players are aggressively positioning themselves in social media and Google. Allegro is leveraging its financial flexibility to defend its market position and aims for continued GMV growth, targeting low double-digit growth in the medium term.
Q: Do you intend to run International operations with losses at the high end of the guidance of 20% to Polish EBITDA?
A: In the short run, the losses are near the 20% limit, but the focus is on annualized results. Investments in International marketplaces are necessary to drive frequency, which will accelerate GMV growth. Reducing Mall segment losses is key, tied to software stack improvements over the next quarters.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
