Eight years ago, Chen Qi, a former engineer at Alibaba-owned shopping portal Taobao, sold his house in Hangzhou, a city in eastern China, for RMB 1 million (USD 140,000). Using the proceeds as seed money, Chen founded an online fashion and lifestyle e-commerce platform called Mogujie (which means ‘mushroom street’) that same year.
Mogujie offers live video broadcasts, short-form videos, photographs and articles, aimed to appeal to young Chinese apparel shoppers aged between 15 and 30.
The platform went through ups and downs in China’s competitive e-commerce landscape. It first served as an open portal which directed traffic to third-party platforms, but was later banned by Taobao, one of its largest revenue generators. The ban came after Taobao failed to talk Mogujie into an exclusive partnership.
Mogujie decided to rebrand itself as a fashion e-retailer and in 2016 gobbled up rival Meilishuo, backed by Chinese tech behemoth Tencent. The merger then valued Mogujie at USD 3 billion.
The company renamed itself “Mogu” last year, tapping the capital market by floating on the New York Stock Exchange. It raised USD 66.5 million in its IPO.
Barely after eight months, however, its market cap shrank to around USD 390 million in late August, versus USD 1.3 billion when it just went public. According to Mogu’s latest financial report released Monday, the company’s net loss narrowed to USD 17.6 million for the three months ended June 30, from USD 43.2 million in the same period last year. Revenue decreased 3% year-on-year to USD 36.3 million.
In an interview with 36Kr in August, Chen said these slowing numbers are temporary as he looks to live video broadcast to salvage the company’s fortunes. He also believes that Mogu will eventually turn a profit, and that this goal won’t take another eight years to reach.
Below is an edited excerpt of the interview with additional information extracted from the transcript of the firm’s recent earnings call.
36Kr: Mogu now focuses heavily on live streaming, which other rivals have also done. How would you differentiate your approach from that of Taobao, your biggest rival?
Chen Qi: Taobao has already established a mature live streaming model based on its wide variety of consumer goods and a large pool of vendors who have been in long-term cooperation with the platform. Obviously Mogu does not have this advantage yet.
Live streaming generates large numbers of orders, and we take these orders to bargain over the prices with vendors. It’s for sure that we want to have more profits, but we will have to enable vendors to make profits first. The negotiations involve many rounds of back-and-forth. It may take several years to make vendors trust you completely. Due to the limit of Mogu’s traffic volume, gathering orders in bulk is the only way for vendors to obtain profits.
Live streaming contributed 30% to the platform’s gross merchandize volume (GMV) in the first half of the 2019 fiscal year, at USD 198 million. With the right strategies in place, we will continue to grow live video broadcast-related GMV to account for over 50% of the total GMV within the next 12 months. We aim to grow it to 80% in the future.
Our biggest strength lies in people. We were the first mover in the e-commerce sector to use live streaming to boost sales and have cultivated a large number of fashion influencers. We have over 60,000 fashion influencers, more than 22,000 live video broadcasting hosts and over 3,100 hours of highly engaging live video broadcast every day.
Before live streaming became dominant, there were two problems: Influencers may pursue other platforms with larger groups of audience and more resources such as Taobao. Also, influencers could post their content to several platforms at the same time since the pictures and texts could easily be copied from one place to another.
Now, live streaming opened a window for us to keep these fashion influencers. They usually stick to one platform as it’s distracting for them to host several live video broadcasts at different platforms. We focus on the cultivation of fashion influencers by improving their operational skills so they can be constantly appealing to customers. By gaining more viewers, they will become more active across multiple channels, and eventually receive wide recognition from followers.
Kr: Did you encounter any major challenges after you shifted focus to live streaming?
CQ: Focusing on live streaming brought pressure on us because it changes our business model. [Previously, Mogu’s revenue from marketplace services, including ad income from search and display, accounted for most of the total revenue, but now commission revenue from live streaming has taken the lead, according to its IPO prospectus.]
The company has been in the red but the situation is getting better year by year. We definitely want our GMV to grow rapidly, but that means we have to try our best to cooperate with a large amount of third-party vendors, either through live streaming or marketing services. Taobao has achieved great success in connecting buyers and sellers in its marketplace, and so it’s meaningless for us to copy that model. [The company is striving to carve out its niche, which is live streaming.]
Kr: It is said that Mogu is currently in talks with Kuaishou, one of China’s leading short-video social apps, for a potential merger?
CQ: People may think that we are reaching out to Kuaishou or other companies [for a merger] because our stock prices and market cap are too low, and I can totally understand that.
Actually I am open to potential partnerships all the time. Partnerships with Kuaishou could be mutually beneficial: Kuaishou may save us from the low stock prices, while we can help it figure out a way to quickly enter the retail market using live streaming. With that being said, I do not have any plans now to sell Mogu. I think its stock value has been underestimated.
Kr: How do you plan to salvage your tanking stock prices?
CQ: When we went public last year, our offering size was quite small. However, we never regretted any decision we made, including listing on the NYSE.
If we had not gone public last year, we may have more regrets today as with the current market sentiment it’s now more difficult to float our shares. Listing in the US can motivate us to focus on what we are doing now [thanks to the public scrutiny of being a public company.] In the coming months, we will focus more on reaching out to investors and media and letting them know our latest progress and achievements.
Li Weilin contributed to this report.
The original article was written by Peng Qian of 36Kr, KrASIA’s parent company.
Contact the writer at sunhenan@kr-asia.com
