Release Date: September 11, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- D-MARKET Electronic Services & Trading (HEPS, Financial) exceeded its guidance for both GMV growth and EBITDA as a percentage of GMV in Q2 2024.
- The company recorded nearly 22% real GMV growth and 1% EBITDA as a percentage of GMV, adjusted for inflation.
- D-MARKET achieved the highest first-half free cash flow since its IPO.
- The Hepsiburada Premium loyalty program scaled to 3 million subscribers, contributing to higher order frequency and customer retention.
- HepsiJet, the company's last-mile delivery service, delivered 73% of total parcels and expanded its fleet with electric vans, emphasizing sustainability.
Negative Points
- The macroeconomic environment remains challenging, with high interest rates and inflation impacting consumer demand.
- There was a 13% decrease in 1P revenue in Q2 2024 compared to the same period last year.
- Shipping and packaging expenses increased by 0.9 percentage points year-on-year, driven by higher order volume and rising delivery fees.
- The electronics market in Turkey has slowed down, impacting the company's GMV mix.
- The company faces uncertainty regarding FX gains, which were a significant tailwind last year but are hard to predict for the coming months.
Q & A Highlights
Q: Your GMV guidance implies a bigger premium to inflation in Q3 than in Q2. What's driving that?
A: There are a few drivers that will deliver higher growth in Q3 versus inflation. These include the impact of our strategic initiatives like Premium, which is driving higher loyalty, our investments with HepsiJet, which already doubled volume in off-platform, and our improvements in ad and premium revenues. Additionally, we expect a positive seasonality impact from the back-to-school period.
Q: What was the impact of the second quarter holidays on GMV?
A: We would probably have roughly an additional 6% real growth on top of our existing growth, bringing our real growth to 10%.
Q: For the second half of 2024, would you expect to return to positive free cash flow like in 2023?
A: Yes, definitely. We are confident that we will have a positive free cash flow on a full-year basis. We will continue to improve our EBITDA and manage working capital diligently in the second half of the year. However, we may not see the same sizable realized FX gain as last year, depending on the Turkish lira devaluation.
Q: Shifting GMV towards Marketplace, 3P. Is that a seasonal shift or is it a strategy?
A: We have a strong strategy to improve our mix for higher non-electronics, thanks to our premium and loyalty programs. This shift to non-electronics is coming towards 3P because home, fashion, and other non-electronics categories have a much higher rate of marketplace in our platform. Additionally, the slowdown in the electronics market in Turkey is also contributing to this shift.
Q: As inflation subsides, how will IAS29 accounting impacts evolve as we go into 2025 on revenue, EBITDA, and free cash flow specifically?
A: On revenue, unadjusted growth will be lower as price increases will be lower with lower inflation, but real growth will remain unchanged. On EBITDA, lower inflation will positively impact the cost of inventory, thus improving EBITDA. For free cash flow, adjusted and unadjusted FCF will be almost the same, but as EBITDA improves, FCF will also see a positive impact.
Q: Could you please talk about measures being taken to address the rise in finance costs due to higher rates?
A: We have adjusted our credit card policy by adjusting the thresholds for interest-free installments. We continue to increase our affordability solutions, which helps manage the overall cost of financing. We are on a positive plan and will continue to focus on these measures to ensure manageable credit card and financing costs.
Q: Can you comment on the consumer environment in Turkey?
A: The macro environment is challenging with high interest rates and a tougher credit environment. However, our affordability solutions, competitive prices, and upcoming seasonal impacts like back-to-school and Black Friday are expected to drive demand. Innovations in electronics, such as new Apple products and AI advancements, will also provide tailwinds.
Q: Can you explain the main revenue drivers for the growth and why Hepsi may stay resilient against lower consumption in the remainder of the year?
A: Our guidance is based on the back-to-school period, which will drive higher GMV and revenue. We expect the electronics market to improve in Q3, positively impacting our 1P business. Our ads business and premium revenues will also continue to grow, contributing to overall resilience.
Q: Have you detected any shift in behavior from consumers as the cross-border taxes have changed as of August 2024?
A: It is too early to comment definitively as the change was effective at the end of August. However, we expect this change to have a tailwind impact on Hepsiburada demand, as we have minimal global inbound share, and it could negatively impact global competitors relying heavily on imports.
Q: Do you see a material pressure on consumer or trading down, and would you expect competition to be tougher in the second half of 2024 and '25?
A: There is definitely pressure on consumers due to a tougher credit environment and high interest rates. We expect higher competition in the second half due to seasonality. However, our strategic measures, affordability solutions, and growing share in external platforms will help us deliver strong performance.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
