WISH (2020 - Q4)

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Wish's Fourth Quarter and Full-Year 2020 Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] At this time, I would like to turn the conference over to your host, Mr. Dennis Walsh, Vice President of Investor Relations. Thank you. Sir, please begin. Dennis W

Thank you, Howard. Good afternoon, and welcome, everyone. Joining me today to discuss our results are Wish's Founder and CEO, Peter Szulczewski; and CFO, Rajat Bahri. During the call, we will make forward-looking statements about our future plans and financial performance. Although we believe the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee these results. These statements are subject to risks, uncertainties, and assumptions. If the risks materialize or assumptions prove [Technical Difficulty].

Probably Mr. Walsh, your line went on mute.

I think something is wrong with the audio, we cannot hear Dennis.

Standby, his line is still connected.

Peter, I think you can start. I think he was done with his statement.

Sounds good. Hope we get Dennis back. Hi, this is --

So we undertake no obligation to and do not intend to update these statements as a result of new information or further events, except as required by law. This call is being broadcast on the Internet and is accessible on our Investor Relations website. A recording of the call will be available later today. During the call, we will discuss GAAP and non-GAAP measures, including adjusted EBITDA, which we refer to as EBITDA, and free cash flow. We encourage you to read our earnings news release, which can be found on the Investor Relations website and is filed with the SEC, as it contains important information about our GAAP and non-GAAP results, including reconciliations of historical non-GAAP financial measures. We'll now open the call up with brief remarks and then we will take your questions. And with that, I'll turn the call over to Peter.

Thank you, Dennis. Glad we got you back, and welcome everyone to our first ever earnings call. For those of you who participated in our IPO, we are thankful for your support. For the team at Wish, building a world-class ecommerce platform and revolutionizing mobile shopping is no small task. So I would like to commend you all for your hard work and continued dedication to our mission. For everyone else, we look forward to sharing our journey with you. I would like to start with a few highlights that we are proud of from the fourth quarter. We completed our IPO in December, raising approximately $1.1 billion, which will be used to support scaling our business and fund future growth opportunities. Fourth quarter revenue of $794 million was a record high for the company and grew 38% year-over-year, driven by increased demand for our Marketplace and Logistics services. Our Logistics business is gaining strong traction with revenue increasing 193% year-over-year in Q4 as merchant adoption accelerated. Importantly, our average time-to-door has been dramatically reduced worldwide, resulting in lower refund rates and a better consumer experience. In addition, we are seeing significant improvements in retention trends for our recent cohorts reversing the downward pressure caused by pandemic related logistics challenges in Q2 and Q3 of last year. Wish's merchant advertising platform, ProductBoost, is bouncing back nicely from a slowdown last year when the pandemic intensified worldwide. The recovery has continued into Q1 as merchants return to more normalized marketing spending. Wish Local is scaling fast and now we have more than 50,000 stores in our network. In its first full-year since launch in late 2019, Wish Local accounted for more than 6% of total orders in Q4, and reached approximately 25% of total orders in some countries. We continued to innovate and launch new products and features that further enhance the consumer experience on the Wish platform, including a daily sweepstakes to reward and engage loyal customers, translation of product information to more than 40 languages, improved time to door estimates, and live chat support. And finally, we onboarded many new brands as merchants, including Mizuno, Rue La La and TracFone Wireless. As you can see, we accomplished a lot in Q4 and ended a challenging year on a high note, but we are just getting started. In 2020, we faced more headwinds during the pandemic than other e-commerce companies, given our global supply chain and a customer base whose earning power has been most impacted by global lockdowns. So I couldn't be more proud of our team for delivering 34% year-over-year revenue growth. As the vaccines roll out, shutdowns ease and our customers are able to start going back to work, I expect 2021 to be another strong growth year for Wish and I am excited about the opportunities ahead. I want to take today's call by outlining our priorities to better serve our customers, our merchants and our partners for 2021 and beyond. When we launched Wish, we wanted to bring an affordable and entertaining mobile shopping experience to billions of consumers around the World. For a substantial number of consumers, price is the most important when making a purchase. We estimate that there are over 1 billion households worldwide with income of less than $75,000, excluding China and India. We believe many of these consumers are not yet shopping online, and we are committed to bringing an affordable and entertaining online shopping experience to this segment of the market. With those value-conscious consumers in mind, we developed a highly personalized discovery-based mobile shopping experience that is similar to popular social media apps, image-rich, highly-engaging with gamified features. We are democratizing e-commerce by making our platform affordable, open, and accessible to all. Our team is relentlessly focused on innovating on product, advancing technology, enhancing the customer experience and leveraging data science and a plethora of data and customer insights from over 100 million monthly active users across more than 100 countries. Wish is a data-driven company, and our focus is always on efficient growth at attractive long-term unit economics. As such, one of our key priorities is to increase the lifetime value of our customers. Wish's data science capabilities provide us with a unique competitive advantage and are core to our business operations. Our proprietary algorithms analyze a rich data set of transactions and historical behaviors to drive continuous optimization, inform key business decisions and maximize our return on marketing investment. We leverage this data to deploy dynamic pricing for better monetization of our user base. I am especially proud of the progress we made in Q4 to increase the lifetime value of our customers. You can see the impact reflected in the significant growth in Q4 core marketplace revenue per active buyer, which increased 66% year-over-year and 25% sequentially over Q3. Wish was built to empower merchants around the world. And as of today, we have partnered with more than 550,000 merchants. We initially grew our platform focused on China-based merchants that specialize in selling quality unbranded products at highly competitive prices. Over time, we have been diversifying into new geographies. Since 2019, we increased merchant partnerships in North America, Europe and Latin America by 362%. In the U.S. alone, we grew merchant partnerships by 435% last year, and now five out of the top 10 sellers on the Wish platform are U.S.-based. We're also further diversifying the type of merchants in our network. With a more comprehensive catalog of product categories and more branded and higher ticket items, we can capture a larger share of consumer wallet and increase customer order frequency. We are prioritizing adding more merchants that sell consumer goods and branded products. Last year, we increased transactions from brands like ASUS, Belkin, Lenovo, Oriental Trading and Toshiba, to name a few. We provide our merchant partners with cost-efficient access to our global user base, scaled data, and technology platform. Many don't have an online presence and are struggling to compete with large e-commerce platforms. Wish's indispensable services, including demand generation and engagement, data insight, logistics, optimization tools and support, help merchants run their businesses and drive sales. We aim to further enhance the value of our platform by adding new services to support our merchants. Wish's advertising and logistics services have been particularly successful additions. Merchant's utilize ProductBoost advertising to more prominently feature their products within the user feed. We leverage data science to optimize ad placement, target high lifetime value users, and maximize the merchant's return on ad spend. We have also developed a proprietary logistics platform for our merchants. Traditional ecommerce is heavily reliant on capital expenditures to build warehouse and logistics infrastructure. Yet at Wish, we grew our Logistics revenue by 275% year over year from $137 million in 2019 to $514 million in 2020, but companywide CapEx was nearly zero. We are building relationships with the best third party logistics providers around the world and leveraging our technology to provide a seamless shipping experience to customers and merchants. Over time, we aim to turn our logistics services into a profit center for Wish. Longer term, we will leverage our technological [indiscernible] insights to extend our platform to the entire ecommerce ecosystem. We have tools like dynamic pricing, a customer acquisition engine, and logistics that can be extended beyond the current Wish platform. We took our first steps toward opening up our platform in Q4 by launching logistics-as-a-service for non-Wish merchants in select geographies. It's still early days for this pilot, but I expect this offering to start significantly contributing to our growth over time. In 2019, we launched Wish Local to help brick-and-mortar stores drive online sales and connect with a global audience. Today, we are driving adoption by incentivizing customers to pick up low value orders at local partner merchant locations, which essentially serve as Wish fulfillment centers. We are leveraging our logistics platform to drive shipping efficiencies, including bundling multiple low value orders together for shipment to Wish Local stores where they will be stored for customer pickup. In Italy and Mexico, approximately 25% of all Q4 orders were shipped to a Wish Local store for pickup, indicating that there is a large unmet demand for this type of service. We made great progress in 2020, but in 2021, I expect we will further accelerate awareness and adoption of Wish Local as the world gradually comes out of lockdowns. We are establishing a massive local warehousing and fulfillment footprint worldwide without having to own any real estate. At scale, we can ship high frequency order products, such as consumer goods, to these locations in bulk and then offer a more cost-effective buy online, pick up in store option for customers that will drive increased shipping efficiencies for us and improve customer order frequency and retention. In summary, our priorities for the next several years are clear. First, leverage the data advantage provided to us by our marketplace of more than 100 million users and hundreds of thousands of merchants to continue driving efficient customer acquisition, monetization and expansion of categories. Second, optimize our asset light logistics infrastructure to reduce delivery times and improve our customer experience. Third, continue to scale Wish Local to provide local retailers with a competitive supply chain and our customers with cost-efficient high frequency products, which in turn will improve customer retention. And fourth, as we build scale across our core capabilities, make more of our services available to non-Wish merchants, including logistics-as-a-service. As you can tell, we're excited about both near and long-term opportunities to grow our business and expand our offerings. We have a decade of experience building innovative ecommerce products, a large and growing user base, a global network of merchant partners, and a data advantage to drive ambitious growth and launch new initiatives. The opportunity for Wish is massive. I hope you join us as we continue to revolutionize the mobile-ecommerce experience. I will now turn the call over to Raj.

Thank you, Peter. Please note that some metrics we discuss will be on a non-GAAP basis. A reconciliation of GAAP to non-GAAP results can be found in our earnings news release, which can be found on our investor relations website and is filed with the SEC. In 2020, we grew revenue by 34% year over year to $2.5 billion, driven by increased Marketplace and Logistics revenue. For the full-year, net loss was $745 million, and adjusted EBITDA loss was $217 million, compared to net loss of $129 million, and adjusted EBITDA loss of $127 million in 2019. Looking specifically at Q4, revenue was $794 million, which increased 38% year over year, driven by higher Marketplace and Logistics revenue. Fourth quarter 2020 net loss was $569 million, and adjusted EBITDA loss for the quarter was $118 million, compared to net loss of $124 million, and adjusted EBITDA loss of $116 million in Q4 2019. As a result of our IPO in December, we incurred significant stock-based compensation expenses and employer related payroll taxes, which totaled $389 million and $398 million for Q4 and full-year 2020, respectively. Before I get into the details of our results, I wanted to provide a quick overview of Wish's business model. Wish's business model relies on cost-effectively adding new users, converting those users into buyers and improving engagement and monetization of those buyers on the Wish platform over time. In addition, we're adding new merchants, delivering economic success to those merchants, and providing them with additional business solutions. Our financial model benefits from strong revenue diversification, including commission revenue, dynamic pricing, ProductBoost and logistics revenue. Marketplace revenue consists of Core Marketplace and ProductBoost revenues. Core Marketplace includes revenues from commissions and dynamic pricing and accounted for roughly 72% of total revenue in 2020. Our user base is global and provides diversification and scale. For the full-year 2020, 46% of Core Marketplace revenue was from European users, 40% was from North America, and 5% from South America, with the remainder coming from the rest of the world. The other portion of Marketplace revenue comes from our ProductBoost advertising service, which accounted for 8% of total revenue in 2020. The remaining 20% of total revenue is from our Logistics services. We have significant operating leverage that allows us to optimize growth and margin expansion. Sales and marketing accounts for the majority of our operating expenses, but we expect it to steadily decrease as a percent of revenue over time. Our other expenses, including product development and G&A, have historically been low single digit percentages of revenue and we expect to maintain these expenses at these levels. We have improved adjusted EBITDA margin from negative 30% in 2016 to negative 9% in 2020 and expect to continue generating margin expansion over time. Our customer cohorts exhibit consistent behavior with repeat customers spending more with us each year. Our asset light and lean operating model gives us the ability to manage and prioritize growth versus profitability in real time. With that as background, let's dive into our results for the fourth quarter of 2020. During Q4, total revenue increased 38% year over year to a record $794 million. Within total revenue, Core Marketplace revenue increased 24% year over year to $527 million in Q4, an acceleration from 17% year over year growth in Q3. Core Marketplace growth rate is expected to further accelerate in Q1 of 2021. Although ProductBoost revenue declined 24% year over year to $62 million, it increased 27% sequentially from the prior quarter. The uncertainty created by the pandemic throughout 2020 caused some headwinds for ProductBoost as many merchants scaled back their advertising budgets. However, during Q4 and continuing into Q1, we saw merchants return to more normalized advertising spending and we expect to see year over year growth in ProductBoost revenue throughout 2021. Q4 Logistics revenue was $205 million, or a 193% year over year increase. The significant increase was driven by the accelerated merchant adoption, as well as the expansion of our A+ program, in which Wish manages first mile collection from merchants to warehousing operations all the way to last mile delivery to the buyer. Moving on to user metrics; at Wish, we always aspire to grow our user base efficiently with a focus on high LTV customers. We ended 2020 with more than 107 million monthly active users, or MAUs, an increase of 19% year over year. In addition, LTM active buyers increased 5% year over year to 64 million. During the holiday season, we decided to de-emphasize customer acquisition in some emerging markets outside of Europe and North America where we faced logistical challenges due to the pandemic that resulted in unfavorable unit economics and a customer experience that did not meet our standards. This decision led to an MAU decline of 10% year over year in Q4, and we expect to re-emphasize these markets as we continue to improve our logistics and further roll out our Wish Local offering. In our main markets, we know that our customers were disproportionately impacted by the effects of the pandemic, leaving many with less discretionary income. To be most effective with our advertising approach, we began emphasizing higher LTV customers within the same value-conscious consumer category. For example, we are incentivizing increased average order values by encouraging add-on items at check out and generating purchasing intent by featuring higher ticket items within the feed, which ultimately drives more revenue and cost-efficiencies. We are confident that the recent cohorts of customers we acquired have a higher LTV, which is reflected in the stronger Q4 Core Marketplace revenue per active buyer increase of 66% year over year and 25% sequentially. In fact, we reduced the portion of total orders that were $3 and less by 17 points in Q4 of this year versus last year. We plan to re-engage with these customers in select emerging markets when we are more certain we can deliver a stronger customer experience. Scaling Wish Local is a key element of that strategy. The success of Wish Local in emerging markets like Mexico and Italy will serve as a playbook of how we will provide cost-efficient delivery, in-store pickup options for customers in emerging markets. Now turning to our costs and expenses for the quarter. All the measures that follow are non-GAAP for 2020 as they exclude stock based compensation and related expenses. Cost of revenue for the fourth quarter of 2020 was $306 million, an increase of 63% year over year. The increase in cost of revenue was primarily due to costs related to higher volume of logistics services. Q4 gross profit was $480 million, up 26% from Q4 2019. Gross margin declined on a year over year basis to 61% of revenue due to higher mix from logistics. As the logistics business begins to achieve economies of scale and ProductBoost accelerates, we expect to drive steady gross margin expansion over time, with a long-term target of 70% to 75 % of revenue. We continue to demonstrate significant operating leverage. Fourth quarter sales and marketing expenses were 70% of revenue, compared to 81% of revenue in Q4 2019. For the full-year, sales and marketing as a percent of revenue was 66%, an 11 point improvement compared to 77% of revenue in 2019. Longer-term, we are targeting sales and marketing expenses to be 40% to 45 % of revenue. Fourth quarter development and G&A expenses as a percent of revenue remained in line with our low single digit ranges. Wish ended 2020 with a solid cash position of $2 billion in cash and cash equivalents and free cash flow of almost breakeven at negative $2 million. We maintain a highly capital efficient business, we don't own any warehouses or production facilities and maintain a minimal amount of inventory. In fact, cumulative cash flow from operations over the last five years was positive $13 million, while we scaled our revenue from $445 million in 2016 to $2.5 billion in 2020. Moving on to our outlook and introducing revenue and adjusted EBITDA guidance. For the first quarter of 2021, we expect revenue in the range of $735 million to $750 million, or a 67% to 70% year over year increase. In addition to Core Marketplace revenue, we expect our high-margin ProductBoost revenue to return to year over year growth in Q1. We also expect our investments in building a logistics platform will hit an inflection point during the first quarter in terms of improving the customer experience, increasing efficiency and further reducing average time to door. It is important to note that Q1 will be an exceptionally strong quarter, since the comparative quarter 2020 was impacted by the effects of COVID pandemic on suppliers and shipping delays. We typically experience a sequential deceleration in MAU and revenue during the first quarter as many China-based merchants temporarily limit operations around the Chinese New Year. On a year over year basis, our revenue growth rate this year is expected to slow following Q1. Last year, we experienced significant revenue growth during the second quarter as customers were increasingly shopping on ecommerce platforms as the pandemic intensified across most of the world and our logistics services became operational again in China. Therefore, we expect that Q2 will be a tough year over year comparison and that we will return to a more normalized growth cadence beginning with Q3. Throughout 2021, we will remain focused on efficiently growing our user base of high LTV customers, which incur higher CPMs on digital platforms. We are confident that investing in our growth at this time is the right decision strategically. In fact, we are already seeing positive signals in retention trends from the newest user cohorts. We will also make investments to expand Wish Local, scale our logistics platform and take steps toward launching new revenue opportunities. To support our growth initiatives, we plan to significantly increase our headcount this year with top industry talent. We ended 2020 with only 875 employees worldwide. We are proud of our employee efficiency and productivity, which is reflected in us generating $2.9 million of revenue per employee in 2020, which we believe is among the best employee productivity in the ecommerce industry. Our strategic investments are expected to be the highest during the first and fourth quarters of the year. As a result, we expect Q1 adjusted EBITDA loss to be in the range of $85 million to $80 million, or a negative 12% to 11% of revenue. Longer term, we continue to target annual adjusted EBITDA margin in the range of positive 20% to 30%. Overall, we are very pleased with our 2020 performance and are even more excited about our momentum heading into 2021. We look forward to updating you on our progress throughout the year. With that, operator, we are ready for the first question. Thank you.

[Operator Instructions] Our first question or comment comes from the line of Doug Anmuth from JPMorgan. Your line is open.

Great. Thanks for taking the questions. One for Raj, one for Peter. Raj, you mentioned MAUs declined 10% year-over-year in the quarter. Just hoping you could talk more about the pullback that you did on advertising and customer acquisition in some of those emerging markets and how we should think about the timing as you bring that back on? And then, second for Peter. The significantly reduced average time door-to-door, can you help quantify that at all perhaps in relation to what you saw kind of 2Q and 3Q? And then, what kind of confidence you have that things have normalized and how should we expect that to run going forward? Thanks.

So, Doug, let me take the first question. Yes. So as I mentioned, like, the countries like -- these emerging markets, the days to delivery was significantly large. And we just felt it's not right to invest in these businesses if the consumers churn, what's the point of investing. So maybe much all of the decline was driven by countries like India, Philippines, Colombia, some Brazil, all those countries where we did it. Now, what we're seeing is that Wish Local works very well in these markets. Like in Mexico, 25% of the orders are Wish Local. And also the logistics are now running fairly normal. In those countries, they're back to historical low level. So we would expect that in the next three to six months, we expect to again engage with these markets and get those MAUs back. So hopefully, that answers your question. With that, I'll let Peter answer the second question.

Yes, thanks, Doug. This is Peter. So first and foremost, really proud of all the improvements we’ve made in terms of reducing what we call time-to-door or delivery times and the corresponding reliability adding last-mile tracking over the back half of 2020 in our core markets. Three weeks is sort of average TTD worldwide, it’s at an all-time low. In the U.S., customers can often get items in under a week as we have more and more locally stored supplies. This is indicated by an orange truck icon in the user’s feed and we're always striving to do better. So we'll continue towards improving the average TTD and the customer experience overall in the future. It's also important to remember that based on a large survey of roughly 3,000 customers that we conducted last year, we found that approximately 75% of our customers prioritize the price of an item over both brand and delivery time. So our typical customer might not actually be able to afford items in other platforms and pay for memberships in order to get speedier delivery. And then on top of that, I think what’s also important to remember is Wish Local and all the work that we're doing in terms of pickup from store now or pickup from store later will help increase or improve TTD or time to door, reduce it even further because customers will be able to ship to a local store for pickup. And we will also for the high frequency items, store these items send it in bulk to our store partners and allow for pickup and actually in the day off or real-time. And on top of that, Wish Local will help us diversify our product categories such as consumer goods and make fulfillment both speedier and much more cost-effective. So hopefully that answers your question. And with that, I think we're ready for a follow-up or the next question.

Thank you, both.

Thank you. Our next question or comment comes from the line of Justin Post from Bank of America. Your line is open.

Great. A couple of more questions on users and then maybe a follow-up. So you mentioned MAUs in emerging markets were down. What do they look like in the U.S. and Europe? And then in your prepared remarks, you mentioned the cohorts -- early cohort data has improved. Can you give us more specifics on what you're seeing there?

Hey, Justin, thanks for the question. So, this is Peter. So I think I'll just make a couple of comments on MAU decline and I'll let sort of Raj discuss the other components of the question. I think sort of overall, almost substantially all of the decline came from emerging markets, as Raj mentioned. I think it's still important to remember that full-year 2020, MAUs actually grew 19% year-over-year. And now, I'll let Raj to address the other aspects of the question in terms of the cohort's behavior or any additional comments he has on MAU.

Yes. And even in the western markets, what we did was we focused, as I mentioned, on higher LTV customers because we felt that people who want to buy $0 to $3 worth of items, it's just not cost-efficient for us. So we pick more of the higher LTV users and buyers. And as I mentioned, our revenue per buyer was actually up 66% last year because of focusing on those type of users versus somebody who just wants to buy one $3 item. So that was actually a very positive shift. And hence, if you look at our gross margins, they were much better than expected because of that shift. In terms of retention trends, I would say, they are almost approaching. We saw a big decline middle of last year when our shipping delays happened, significantly the days to delivery almost doubled. And we are almost back to pre-those levels. So those are the encouraging. Now we've had two months -- two, three months of data. We are watching those trends, but it's pretty obvious that when logistics have improved so much, our refund rates are down significantly. People have a last-mile tracking. It's a much better experience for our consumers right now. It's probably one of the best experience we had in our history actually, at this point of time for our consumers. So, yes, we are encouraged. But we will have -- we will have more confident as we have two more months under our belt.

Great, thanks. Maybe one follow-up, because I know you'll get questions, modeling 2Q is going to be a challenge for everyone. And just kind of think about how to do that, would you go back to pre-2018 and 2019 levels and look at things sequentially? Or any other comments you could maybe help us when we think about 2Q?

Yes, I think that Q2, we -- you could look at history for as a guide. We still expect to grow in Q2 in spite of a huge Q2 that we saw last year. I think revenue sequentially went up like 60% to 70% last year Q2 to Q1. So, we will still expect growth in Q2, but it will be a much more moderated growth because of the tough year-over-year comparisons that we saw. The external factors, obviously, stimulus coming in again argue this, value conscious consumers have been hurt the most. How does that play into it. We are cautiously watching that. Unemployment again getting better, again our consumers have been hurt the most in the pandemic, the value-conscious consumers. So all those things will come into play, but I would be more moderated in growth in Q2 and then starting Q3, Q4 we come to again good, strong double-digit growth rate in the back half of the year.

Thanks. That's helpful. Appreciate it.

Thank you. Our next question or comment comes from the line of Jason Helfstein from Oppenheimer. Your line is open.

Thanks. I may have two. So, maybe first, I think the gross margin came in a bit, a little worse than we were all expecting even though kind of revenue was better. So just maybe talk about some of the dynamics there. I think both the Marketplace and Logistics exceeded by about the same amount. So just if there is something underlying there. And then secondly, you made a comment in the core -- in letter about the logistics as a service for non-Wish members in select geographies. Anything you can share and kind of maybe when you would think that could start to have an impact on the model in a more meaningful way? Thank you.

Yes. I'll let Raj address the first part of the question on gross margin.

So on gross margin, I think we have to look at excluding SBC expense, stock-based expense. On an apple-to-apple, orange, it actually came like 400 basis points better than what we expected and what we were anticipating. So, gross margin was actually better because product goods, which is a 100% gross margin, business was good, better than what we expected. Core Marketplace also been better. So I think you may be looking at things with SBC expenses and exclude that and look at apples-to-apples actually did better than what we expected. Peter, I'll let you answer the second question.

Yes, this is Peter, Jason. Look, on the logistics as a service, look, ultimately we feel that for ourselves, we've sold much more efficient and effective cross border logistics platform for really transactions and merchants transacting within our marketplace. And our proprietary platform provides merchants with our unique ability to actually bundle orders which drives significant efficiencies, especially as over the last three, four years, cross-border logistics has become a lot less efficient and especially for single item lower order value transactions. And then on top of that, our Wish Local network allows customers to pick up an order in store and allows us to ship multiple customer orders together to be warehouse in these stores. So we're bundling 50, 100, 150, 200 orders for many, many, many household customers and using single shipment. As you can imagine, that drives much greater efficiencies versus shipping all these individual items 200 times on 200 separate airplanes, clearing customs and ultimately doing last mile delivery, which we think is going to become more and more expensive over time. And our consumer segment, the value-conscious consumers are going to be looking towards solutions where they can save a bunch of what is a lot of money to them by taking a little bit of time out of their day and pick up these orders from stores. So overall, we've created these strong efficiencies and higher reliability and effectiveness. And we look forward to passing of those solutions to transactions and merchants that may not necessarily be transacting within our marketplace. And again, I think it's too early to share any results on the pilot, but we are very encouraged by the early signals and we will continue to up for both -- and scale this up even for transactions and merchants that aren't necessarily participating within the Wish marketplace framework.

Thank you.

Thank you. Our next question or comment comes from the line of Kunal Madhukar from Deutsche Bank. Your line is open.

Hi, thanks for taking the questions. Couple if I may. One, with regard to shipping and shipping coming back to normal. There are shipping delays that are happening on the shipping side where people are using ocean freight and the costs are going up significantly. Are you seeing anything with regard to like costs or addressing on that kind of overrun into air shipping, which is what you use? And then on the Wish Local side, if you're getting to about 25% of orders that are being delivered through Wish Local, at what point do you pull the trigger, and you say, hey, you know what, this market is good enough, the volume of orders, especially is good enough where we should start trying subscription for the local stores. Thank you.

Thanks, Kunal. This is Peter. So in terms of shipping coming back to normal, obviously with actually passenger air flights being still somewhat reduced globally, especially to and from China. This is largely baked in, in terms of the cost increases. Now we use ocean freight in very limited capacity. It's typically to send forward deployed inventory into stores that will be available for pickup immediately, that still running out of relatively low scale. But almost everything we do is air freighted when it comes to cross-border orders. But in terms of all the pricing increases, you have to remember that with our -- the cost efficiencies that we gain from bundling even sort of per household and incentivizing customers to buy more items per order by higher order value items, we've largely sort of baked in those cost increases. In terms of Wish Local, so it's select geographies where we're seeing up to and exceeding sort of 25% of orders that are being ordered for pickup from store. These are typically sort of either emerging markets or more of the sort of four regions of the world. So we actually see this as a huge opportunity for us to expand into more emerging markets, whether it's completely new markets that we've never sort of scaled in or scale up sort of existing emerging markets where this seems to resonate really well with both the customers who tend to be more value conscious and the actual brick and mortar stores which get access to unique inventory and the ability to actually drive traffic in these stores.

Thank you.

Thank you. Our next question or comment comes from the line of Nick Jones from Citi. Your line is open.

Great. Thanks for taking the questions. I guess one on a follow-up on Wish Local with 25% in Mexico and Italy and I think 6% in total. And maybe following up on commentary on where it is successful. Over time, what percent should we think about being shipped to Wish Local locations? And I guess, can you give any color on kind of what the frequency is for those who engage with the Wish Local as opposed to just getting it delivered to their home? Thanks.

Yes. Thank you, Nick. So, this is Peter. Look, it's one of the fastest growing initiatives that we've ever launched in terms of order volume, despite the fact that a lot of these stores and the lot of these regions are still under some version of lockdowns and obviously less willingness of people, customers to sort of venture out outside and shop in stores. So, if you kind of look at the situation, currently Wish Local is about 7% of the volume, but it's rising quickly. And again some markets will be better suited for Wish Local than others. As mentioned, Italy and Mexico already see 25% of the orders being shipped to our Wish Local store partners for pickup. And we see it as a massive opportunity after a decade of year after year record store closures ending 2020 which was a disaster for small and medium-sized businesses. And with small and medium sized businesses making up 90% of all enterprises globally, we believe that Wish Local will be an extremely attractive partnership opportunity for many of these businesses. And as we continue to build out our Wish Local offering where we think we'll be able to position our products in the highest density areas, so that we can reach users, faster and cheaper. And I don't think we are sharing any outlook in terms of what Wish Local will look like long term, but all indications are that even though it's early that this will take up one, a larger share of the order volume. Two, present new opportunities in terms of other types of services we can provide to these stores. And three, will be a great tool to leverage for expanding geos that traditionally has been challenging to drop ship into. Both stuff sort of, if you look at emerging markets they have some very fixed logistics infrastructure capacity, if you exceed that, the customer experience gets substantially worse from a timing perspective. And we think that what we're seeing with Italy and Mexico and other regions got Wish Local as potentially an amazing or very effective solution to get a larger share of those markets.

Great, thank you.

Thank you. Our next question or comment comes from the line of Eric Sheridan from UBS. Your line is open.

Yes, maybe, following up on some of the questions from the call already, but just putting a pivot to the margin side of the equation. How should we think about the investments building as we move through the next sort of three to four quarters? And how should investors think about the yield on the other side of those investments, whether it's faster user growth, higher shopping velocity or better conversion of traffic that would be the other side of some of the investments, so we can think about some of the leverage beyond the next couple of quarters. Thanks so much guys.

Yes. So in terms of investments, the way we are looking at it is with improving retention trends and consumer experience being good and consumer revenue per buyer going up is the right time to invest in the business. So that's one level of investment which we'll have, but it will be pay back in higher LTV buyers and I think strategically, the right thing to do for the business. Secondly, Wish Local as you know some countries are becoming 25 per shop orders, we want to invest behind that. And generally, our headcount, we have lot of initiatives that we are pursuing new revenue opportunities. We still have around 800 people in the company generating $2.5 billion in revenue. So those are the three levels of things we think we should be investing in the business. And so that's how we're thinking about it. Hopefully that answers your question.

Thank you. Our next question or comment comes from the line of Stephen Ju from Credit Suisse. Your line is open.

Okay, thank you. So, Peter, can you talk about the types of sellers you are adding outside of China? And what type of merchandise they might be specializing in? And I guess subsequently what has the reaction been from the consumers? Is this a faster part of your revenue growth or the consumer still primarily reacting best to the unbranded merchandise? And Raj, I guess if you can give us some more color on the logistics investments. It seemed like based on Peter's comments earlier, when you talk about reducing average time-to-door, are you talking about reducing that door to door transit time for the developed markets? Or are you talking primarily about those regions of the world that still remain at an elevated level versus, say, the United States? Thank you.

Thanks, Stephen. This is Peter. So with respect to non -- our branded merchants. Just sort of various ways that we categorize these is could be sort of non-Asia based merchants or non-China based merchants. There's also obviously a branded merchandise. So look, our focus is always on value conscious consumers and building a world-class affordable and entertaining consumer experience for that segment of the market. However, where we are seeing the most traction, in terms of new merchant partnerships. As I mentioned, if we just looked at year-over-year, 2020 over 2019 in North America, Latin America and Europe, we grew our merchant partnerships by 362%. And in the US alone, we grew US based merchant partnerships by 435%. And on top of that, as I mentioned earlier, 5 out of the top 10 sellers on the Wish platform are US-based. And these sellers, for the most part are selling into US customers only. So even though they're selling into roughly let's call it a one-third of our consumer base, they are 5 out of the top 10 sellers on the Wish by gross sales. So that's where we're seeing a lot of traction, that's where we're seeing new incremental inventory that's unique and different from what was available before and that's why these merchants are having a lot of success. The categories where we're having a lot of success with other ticket items, some of it is still in the sort of closeout liquidation inventory segment, refurbished segment. But it's almost across all different types of categories, whether it's higher ticket price, electronics, furniture, home decor, et cetera. And we will continue to sort of build out seek and build out those partnership not just in the US and Europe, but also in places like Latin America. And we will continue to strive to add more affordable inventory wherever we can find it. Raj, I don't know if you want to handle the part about logistics?

Yes, sure. So let me just clarify by saying that door to door delivery at record low levels, pretty much by now was everywhere, even in the emerging markets. But we are in terms of re-engaging the customers, I think there'll be two parts to it. One is like there is countries you probably lost quite a bit of users, and we were experimenting last year in countries like India, Philippines, Colombia, we hardly had zero sales in there. We were just going and seeing if we can make that work. That may be a strategy that works well with Wish Local. And because Wish Local in Mexico we do, has been very successful, so we may go after those markets by leveraging our Wish Local platforms. And in other emerging markets like Brazil where our sales to delivery is down again, it may be the traditional route. So it will be a mix of strategies, depending upon which emerging market we engage in. Because in Brazil we already have a good infrastructure. We may leverage our traditional drop ship model and maybe Wish Local. But in some countries we may just purely do Wish Local. So we'll talk more about it, but that's how we'll go and engage with those countries in the next few months.

Thank you.

Thank you. Our next question or comment comes from the line of John Blackledge from Cowen. Your line is open.

Great, thanks. Two questions. First on the Core Marketplace revenue, it was much better than we expected. Just curious what drove the upside in that line. Was it dynamic pricing or was it commissions on higher GMV for customer or a mix of both? And my second question on Wish Local. Kind of what are you seeing with your active buyers that are using Wish Local? Are they buying more frequently? Are they buying more categories? Any kind of color there would be helpful. Thank you.

Peter, let me take the first one and you can do the second one?

Yes, sure.

So, I'm terms of Core Marketplace revenue, yes it accelerated and did much better than we expected -- than what we were thinking, partly because our strategy I talked about focusing on higher LTV buyers. We know these LTV buyers tend to buy more, they buy more expensive products in the relative speed of our products. And we can optimize margins with these buyers much better just based on how they behave on the platform; so it was a mixture of all those three things just targeting those buyers having them buy more items, and then also using dynamic pricing on those items. That's what led to better revenue per buyer and better Core Marketplace revenues. And we think this strategy worked very well so far in Q1. Our Q1, as I said, the growth lever for Core Marketplace would even be better than what you saw in Q4. And Peter maybe you can comment to the frequency of orders that we're seeing on Wish Local, the second part of the question.

Sure, yes. So again, Wish Local clearly resonating strongly with our customer base and with our store partners as well. I don't think we're ready to share anything on how this actually affects cohort behavior. And also there is a little bit of selection bias there because we're clearly picking out regions, geographies, neighborhoods where we do have strong performance in terms of active buyers and transaction volume. So it becomes a little bit tricky. I guess what I can say is we firmly believe that this is a huge competitive advantage in terms of fulfillment cost. And when it comes to forward deployed inventory for the high frequency order products, it also allows us to provide our customers an option to pick up from store in real time, day off, within the next hour, within the next 60 minutes, et cetera. And on top of that, we are getting the Wish Local stores to upload the inventory within their stores, we're not charging for this yet, we are still relatively early. But that allows us to sell categories where we've been traditionally weaken, whether it's consumer products or maybe even grocery something along those lines. So we are seeing sort of strong adoption and resonates with our customers in terms of Wish Local, and in some geos, it's obviously resonating quite nicely. But I don't think we're ready to comment or it's probably too early to comment on how this actually affects cohort behavior. But it is one of our core long-term strategies not just to have a much more efficient cost of fulfillment solution for value conscious consumers who are willing to make that trade-off a little bit of inconvenience time to save a little bit of money, but also create new opportunities to actually open this up as part of our logistics as a service program to help other looked at another platforms with these cost efficiencies and helps these brick and mortar stores in other ways in terms of understanding demand dynamic pricing, customer acquisition, really even understanding their -- understanding and procuring their inventory as well. So I think this is something that will be a long-term investment for a really long time. We're happy where -- with the progress that we've made, and then how well it's resonating with customers and our business partners and we will continue to make investments there.

Thank you.

Thank you. Our next question or comment comes from the line of Laura Champine from Loop Capital. Your line is open.

Thanks for taking my question. I appreciate the information on LTM active buyers at 64 million, but what was the active buyer count in Q4?

We haven't disclosed quarterly. We have disclosed LTM buyers and we continue to do that. And you can do your math and figure that out over time, but typically we have disclosed LTM in our S1 and that's what we will disclose.

Okay.

Laura, they were sequentially up Q4 to Q3.

Got it. Thank you. When we think about the markets that you called out that negatively impacted MAU, India, Philippines, Colombia and your efforts to step up Wish Local to help meet demand there. How long will that take? And can you give us more details on your plans there?

Yes, thanks, Laura, this is Peter. Yes, so there -- Raj kind of touched upon this. We need to find the right commercial solutions to get products in bulk whether it's pick up from store and towards three weeks from now, which are bundles of and 50, 100, 150, maybe 200 items per package or forward deploying inventory that we know will sell at a high frequency in those regions. So this is something that we're working on. I think for quite a while we've been playing defense on the logistics side, accelerated by what happened during the pandemic, with our especially given our supply chain concentrated in Asia and where consumers are concentrated in Europe and North America. We have to focus on that. We feel we've largely solved those problems. We now have better performance and greater efficiencies than anyone else doing this type of cross-border drop shipping. Wish Local obviously adds to those efficiencies significantly. But we're still an 850 person company. We obviously had raised a lot of funding during the IPO which we'll deploy to accelerate these efforts. But I agree with you, what we're seeing in places like Mexico, Italy more sort of value conscious oriented consumer segment, Wish Local is a great opportunity. And we will be carefully choosing in places where we expand these offerings to at scale and finding the right partners to help us accelerate it.

Got it. Thank you.

Thank you. Our question or comment comes from the line of Ralph Schackart from William Blair. Your line is open.

Hi, good afternoon. You talked about reducing lower AOV items during the quarter, during the prepared remarks. I was just curious if this is more of a shorter term oriented strategy, your strategy intend to keep focusing on more of a longer-term basis? And a follow-up question is, just curious how sustainable do you see the core marketplace revenue per active buyer levels that were pretty high this quarter as more of your emerging market buyer start to come back online? Thank you.

Yes, thanks, Ralph. So I'll address sort of the first part of the question. Yes, so with the changes in logistics cost cross-border, it just does not make sense for us to ship individual items sort of sub $3. It's not an effective strategy for our business. So what we've done is we've incentivized our customers to actually make larger purchases, whether it's especially in terms of number of items per order higher -- which correlates with higher order values. So that we can bundle these orders and really take the benefits of greater cost efficiencies of sending three items in one package versus these items individually. That's why out of the 90% of logistic shipments that we now control in one way or another, about 50% of those we basically control fully. Leveraging all the data, all the partners we have and everything that we understand from the performance and efficiency perspective. But the core strategy, so if you kind of think about, we're still focused on value conscious consumer segment. But if you kind of visualize the bell curves of those like let's say under $100,000 in annual household income or something on those lines, we probably, for two reasons. We shifted from maybe sub 30 K, 30 K or something that the sort of most value conscious consumer segment within that broader value conscious consumer segment, who would come in and buy a $3 item, that's no longer sort of viable anymore. So we have shifted kind of towards the right of the distribution and still focused on value conscious consumer segments, but probably ones that aren't affected as much by the pandemic and have are able to sort of join the platform by 2, 3, 4, 5 items at a time and incur the greater sort of cost savings from that due to logistics efficiencies. Our strategy to bring back these most value conscious consumers that would prior to this come and buy a $3 item that was maybe $2 in shipping, now it might be a lot more expensive in shipping. What -- our strategy there is, if we actually bundle those orders for pickup in store, we will have better efficiencies for those customers than ever based and willing to actually go and pick it up from the store and we think they will be, because again, these are the most value conscious consumers. So Wish Local is again a key part of the strategy to get those customers back. So hopefully that answers that. I'll let Raj address sort of Core Marketplace revenue trend as well.

Yes. So I think Core Marketplace revenue trend I expect to be staying in the same level. Clearly there could be a mix implication. We may get more buyers in Core Marketplace -- in emerging markets which have less revenue per buyer to your point. But at the same time, cost of acquisition of those buyers is not cheaper. So we always focus on the payback and LTV and so forth. So that will be okay as long as that equation works. So we look at it really by country by country and look at those metrics and see is it worth going. The reason we got out of those markets at least for Q4 was because that equation was not working, because logistics was causing heavy churn. So it was no point investing on those. So we will go after those countries once we have stable customer experience and revenue per buyer will be lower in those countries, but so will be the cap.

Great. Thanks, Peter. Thanks, Raj.

Thanks.

Thank you. I'm showing no additional questions in the queue at this time. I'd like to turn the conference back over to Mr. Peter for any closing remarks.

Thank you everyone for joining us today. We look forward to speaking with you again in May for our Q1 results announcement.

Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may now disconnect. Everyone have a wonderful day.