EBITDA was corrected after 2022Q4 adjustment. Youzan 22Q4 achieved total revenue of about 400 million yuan, an increase of 1% over the previous year, and the revenue growth rate was corrected. Among them, subscription solutions and merchant solutions were 23/17 million yuan respectively, down 3% /6% from the previous year. 2022Q4's gross margin increased from 60% in the same period last year to 68%, of which subscription solutions increased from 67% to 81%. Q4 Significant improvements were achieved on the cost side. The sales expenses ratio fell from 69.1% in the same period last year to 45.5%, the administrative expenses rate dropped from 25% to 10.8%, and the R&D expenses rate fell from 29.9% to 8.2%. The adjusted EBITDA was 7.15 million yuan, which was corrected. Guimu's net loss was 0.4 billion yuan, compared to 2.15 billion yuan in the same period last year.

Revenue for the full year of 2022 was $1.5 billion, down 5% year over year. Guimu's net loss was 300 million yuan, a sharp decrease from 2021's loss of 2.5 billion yuan.

Optimize the merchant structure and focus on the core customer base. As of Q4 2022, the number of paying merchants in stock reached 83,400, a year-on-year decrease of 6%. Q4:0.89 million new paying merchants were added, and 14,600 merchants were lost. Among them, as of Q4, the number of SaaS stores in stock was 30,800, of which the number of WangXiaodian merchants dropped to 0.72 million, with a loss of nearly 3,000 over the previous month. We expect the impact of the loss of WangXiaodian merchants to continue until mid-2023. The merchant structure is continuously optimized. The company's target customer groups are lower-back merchants with annual sales of 36-480,000 yuan and leading merchants of 480,000 yuan or more. The target customer base for 2022 was 39,000, an increase of 8% over the previous year. The proportion of paying merchants increased from 41% last year to 47%, and the target customer group renewal rate was higher than 75%.

In the future, Youzan will focus on the three core customer groups of content monetization, brand DTC, and store digitalization to provide matching solutions to create a more efficient sales system. The Youzan merchant structure is expected to achieve continuous optimization and promote the increase in the APRU, GMV, and renewal rates of merchants.

GMV stabilized, and store SaaS continued to increase. The 2022Q4 GMV was 27.3 billion yuan, an increase of 3% over the previous year. The growth rate of non-Kuaishou GMV in 2022 was 19%. From a structural point of view, the GMV of store SaaS was 42.5 billion yuan, an increase of 53% over the previous year, accounting for 42% of the total. The average annual GMV of merchants in 2022 was 1.2 million yuan, an increase of 9% over the previous year. The number of businesses with an annual GMV of over 100 million and over 10 million also achieved rapid growth. Looking ahead to 2023, we expect the 2023Q1 off-season GMV to remain flat, and GMV is expected to grow 10-15% throughout the year.

Investment advice: Cash income is expected to resume growth, continue to improve operating efficiency, and maintain the “buy” rating. In 2023, the company's primary business goal is to continuously improve operating efficiency, steady cash revenue growth, and continuously improve operating cash flow and operating results. We expect cash revenue to grow in 2023, but the short-term revenue side may still be under pressure due to delayed revenue recognition. On the profit side, we expect losses to narrow further as operating efficiency increases and the business structure improves, so we will adjust the adjusted net profit forecast. We expect the company to generate revenue of 15.0/17.7/2.05 billion yuan in 2023-2025, and adjusted net profit of -0.2/0.35/100 million yuan, maintaining the “buy” rating.

Risk warning: The scale of delivery by private domain platforms fell short of expectations, competition from official channels such as the WeChat Mini Program exceeded expectations, the number of paying merchants and merchant turnover grew less than expected, and the improvement in merchant renewal rates fell short of expectations.