Yunji Inc. — 2019 Form 20-F Summary
Reporting period: Fiscal year ended December 31, 2019. This is an annual report, not a standalone 2019 fourth-quarter filing; separate Q4 financial results are not provided. Financial statements are prepared under U.S. GAAP. Amounts below are RMB unless otherwise indicated.
Business context
Yunji operates a China-focused, membership-based social e-commerce platform. It sells merchandise directly and, beginning in the first quarter of 2019, earns commissions from third-party merchants on its marketplace. Direct merchandise sales are reported gross, while marketplace commissions are reported net, so the shift toward marketplace activity affects reported revenue and margins.
Financial and operating metrics
| Metric | 2019 | 2018 |
|---|---|---|
| Total revenue | RMB11.672bn (US$1.677bn) | RMB13.015bn |
| Operating loss | RMB298.4m | RMB99.4m |
| Net loss | RMB123.8m | RMB56.3m |
| Net loss attributable to Yunji Inc. | RMB125.8m | RMB59.7m |
| Operating cash flow | Use of RMB1.117bn | Generation of RMB883.0m |
| Investing cash flow | Use of RMB115.5m | Use of RMB458.0m |
| Financing cash flow | Generation of RMB623.4m | Generation of RMB747.9m |
| Cash, cash equivalents and restricted cash at year-end | RMB967.7m | RMB1.565bn |
- Revenue mix in 2019: merchandise sales RMB10.548bn; membership program RMB776.8m; marketplace commissions RMB311.9m; other revenue RMB34.9m.
- Cost of revenue was RMB9.249bn, or 79.2% of revenue. Revenue less cost of revenue implies gross profit of about RMB2.423bn and a 20.8% margin, versus about RMB2.309bn and 17.7% in 2018; this simple comparison should be viewed in light of the different gross-versus-net revenue presentation.
- Sales and marketing expense rose 24.3% to RMB1.187bn; technology and content expense rose 119.4% to RMB315.2m; general and administrative expense rose 88.5% to RMB277.5m. Fulfillment expense declined 16.9% to RMB965.9m.
- Year-end total assets were RMB3.302bn, total liabilities RMB1.838bn, and shareholders’ equity RMB1.465bn. Current assets of RMB2.861bn exceeded current liabilities of RMB1.798bn. Cash and cash equivalents were RMB883.4m, restricted cash RMB84.4m, and short-term investments RMB774.7m.
- The company reported no borrowings or long-term debt at December 31, 2019. Operating lease liabilities totaled RMB45.3m; disclosed operating lease payments were RMB48.4m.
- GMV rose 55.7% to RMB35.3bn. Buyers declined to 22.5m from 23.2m; transacting members increased to 9.6m from 6.1m. Merchandise orders fulfilled grew 8.5% to 166.6m, with a further 34.6m marketplace orders.
Material changes versus 2018
- Revenue declined 10.3%, despite higher GMV and more fulfilled orders. Management attributed the decrease mainly to the shift from direct merchandise sales, recognized gross, to marketplace transactions, recognized net.
- Membership revenue fell 50.0% to RMB776.8m as Yunji changed enrollment options. Marketplace revenue was RMB311.9m in its first year of operation.
- Operating loss increased to RMB298.4m, principally reflecting higher share-based compensation, personnel costs, technology investment and promotion costs. Net loss increased to RMB123.8m.
- Operating cash flow moved from positive RMB883.0m to negative RMB1.117bn. Management cited lower accounts payable and deferred revenue, along with the cash-flow effect of the changing business mix; financing cash flow included IPO proceeds.
- Inventory declined to RMB428.3m from RMB675.5m as marketplace merchants generally handled their own inventory. Inventory turnover days increased to 21.5 from 17.0.
Outlook, commentary, risks and unusual items
- Management stated that available cash and expected operating cash flows were expected to cover working capital and capital expenditures for at least 12 months from the report date, while noting possible additional funding needs. No specific full-year 2020 earnings or revenue guidance was provided.
- The filing reported COVID-19-related disruptions in early 2020 and expected first-quarter 2020 GMV of RMB7.0bn, compared with RMB6.8bn in Q1 2019 and RMB11.0bn in Q4 2019. Management said growth was slower than previously anticipated and the full-year effect was uncertain.
- A 2019 change in estimate reduced refund payable to members by RMB379.4m and increased revenue by the same amount. The liability fell from RMB396.0m to RMB26.9m; the adjustment reflected lower expected referral incentives following membership promotions.
- Financial income, net rose to RMB121.4m, including a RMB68.6m unrealized fair-value gain on the GXG investment. Other non-operating income included RMB43.6m of government grants. These items supported reported results but do not represent core operating performance.
- Two material weaknesses in internal control over financial reporting were identified: insufficient U.S. GAAP/SEC reporting expertise and insufficient documented closing procedures, particularly for cutoff and accruals. Management concluded disclosure controls were ineffective at year-end. The filing’s independent auditor issued an unqualified opinion on the financial statements; the auditor did not attest to internal controls because of the newly public company transition period.
- Key risks include the PRC VIE structure and regulatory uncertainty, licenses and filings not yet obtained or completed for certain activities, e-commerce and pyramid-selling regulation, member retention, platform and data security, product quality and merchant oversight, and reliance on third-party logistics, payment providers and service companies.
- The company disclosed putative securities class actions alleging IPO-related misstatements; proceedings were preliminary and the company could not estimate a possible loss. No litigation accrual was recorded at year-end. A RMB9.6m fine relating to pre-February 2016 sales and marketing practices had been paid in 2017.
- Share repurchases totaled approximately US$20m under the authorized program, which was closed in January 2020. The company said it did not expect to pay dividends in the foreseeable future.
Important facts for investors to verify
- How much of the revenue decline and apparent margin change reflects the gross-to-net marketplace accounting shift, versus underlying demand, pricing or economics?
- Whether the 2019 operating cash outflow recurs, and how working-capital movements, merchant settlement balances and cash held in restricted accounts affect usable liquidity.
- Whether membership promotions sustain transacting-member growth and repeat purchases without materially increasing incentives or weakening monetization.
- Progress remediating the disclosed control weaknesses, and the results of subsequent management and auditor assessments of internal controls.
- Status and potential outcomes of the securities litigation, outstanding licenses and filings, and regulatory developments affecting the VIE and marketplace operations.
- Whether COVID-19 disruption, merchant and logistics performance, and the first-quarter GMV outlook translated into material full-year effects; the filing gives no clear full-year numerical forecast.