D-MARKET Electronic Services & Trading(HEPS) - 2022 Q1 - Quarterly Report

Financial and Operational Highlights Fourth Quarter 2021 Highlights In Q4 2021, Hepsiburada achieved significant growth in Gross Merchandise Value (GMV) and order volume, with a 52.5% and 53.4% increase year-over-year, respectively. The active customer base expanded to 11.3 million. However, EBITDA declined to negative TRY 676.7 million due to increased advertising and payroll expenses. Notably, the company reported a net income of TRY 714.0 million, primarily driven by substantial net foreign exchange gains Q4 2021 Key Metrics vs. Q4 2020 | Metric | Q4 2021 (TRY) | Q4 2020 (TRY) | Change (YoY) | | :--- | :--- | :--- | :--- | | GMV | 9.4 billion | 6.1 billion | +52.5% | | Revenue | 2.76 billion | 2.20 billion | +25.4% | | Number of Orders | 17.4 million | 11.3 million | +53.4% | | Active Customers | 11.3 million | 9.0 million | +24.8% | | Frequency | 4.7 | 3.9 | +22.9% | | Active Merchants | 75.0 thousand | 44.7 thousand | +67.9% | | EBITDA | (676.7 million) | (182.7 million) | -270.4% | | Net Income/(Loss) | 714.0 million | (322.8 million) | n.m. | - The shift to profitability in Q4 was primarily due to TRY 1.66 billion in net foreign exchange gains from U.S. dollar-denominated bank deposits, compared to a negligible gain in Q4 2020[4] - The decline in EBITDA was mainly attributed to increased advertising and payroll expenses, and to a lesser extent, lower gross contribution[4] Full Year 2021 Highlights For the full year 2021, Hepsiburada's GMV grew by 54.0% to TRY 26.2 billion, surpassing its guidance. Revenue increased by 18.5%, with the slower growth rate relative to GMV reflecting a strategic shift towards the marketplace model. The company experienced a significant decline in EBITDA to negative TRY 1.63 billion, driven by higher customer discounts, advertising costs, and payroll expenses. The net loss for the year was TRY 625.8 million, which was mitigated by significant foreign exchange gains Full Year 2021 Key Metrics vs. Full Year 2020 | Metric | 2021 (TRY) | 2020 (TRY) | Change (YoY) | | :--- | :--- | :--- | :--- | | GMV | 26.2 billion | 17.0 billion | +54.0% | | Revenue | 7.56 billion | 6.38 billion | +18.5% | | Number of Orders | 53.5 million | 34.9 million | +53.4% | | Share of Marketplace GMV | 67.9% | 59.0% | +8.9 pp | | EBITDA | (1.63 billion) | (87.8 million) | n.m. | | Net Loss | (625.8 million) | (474.5 million) | +31.9% | | Free Cash Flow | (124.1 million) | 341.4 million | n.m. | - The difference between the 54.0% GMV growth and 18.5% revenue growth is mainly due to an 8.9 percentage point shift in GMV mix towards the Marketplace (3P), where revenue is recognized on a net basis, and higher campaign costs[8] - The decline in EBITDA was attributed to lower gross contribution (especially from Q3 discounts), increased advertising costs, and higher payroll expenses amid intensified competition[8] CEO Commentary The CEO highlighted the company's strong Q4 performance, which led to exceeding the full-year GMV growth outlook despite currency volatility and a competitive market. For 2022, the strategy focuses on scaling growth drivers, enhancing logistics and technology, and using data-driven marketing. A key priority is achieving sustainable growth and improving profitability through disciplined cash and cost management, with a commitment to leading the digitalization of commerce in Turkey - The company exceeded its full-year GMV growth outlook, reaching TRY 26 billion, driven by strong execution in the fourth quarter[6] - In 2022, the company will focus on scaling growth drivers, building on strategic assets, and investing in logistics, technology, and data-driven marketing[7] - A high priority for the future is pursuing sustainable growth by improving profitability through disciplined cash and cost management[10] - Recent innovations include the nationwide rollout of HepsiJet XL for large items and the introduction of a buy-now-pay-later solution within the Hepsipay Wallet[9] Financial Outlook and Business Developments Financial Outlook For the full year 2022, Hepsiburada expects approximately 50% GMV growth compared to 2021, despite uncertainties from regional geopolitical headwinds and high inflation. The company anticipates Q1 2022 GMV growth to be stronger than the rest of the year. Management has no plans to raise additional capital in the next 18 months and is focused on improving margins through disciplined cash and cost management - The company expects to achieve around 50% GMV growth for the full year of 2022 compared to 2021[16] - GMV growth in Q1 2022 is expected to be higher than the growth rate for the rest of the year[14] - The company has no plans to raise capital during the next 18 months and will focus on improving margins and profitability[16] Key Business Developments The company's key business developments centered on strong performance during the peak 'Legendary November' season, driven by its hybrid 1P-3P model and affordability solutions. Growth was fueled by an expanding customer base and increased order frequency. The Marketplace continued to scale, with significant increases in active merchants and SKUs. Customer experience remained a focus, evidenced by a high Net Promoter Score and enhancements in logistics services like HepsiJet. Strategic assets Hepsipay and HepsiExpress saw rapid user adoption and service expansion, including the launch of a BNPL solution. The company also continued its commitment to social programs, notably empowering women entrepreneurs GMV and Order Growth Q4 2021 GMV grew 52.5% YoY to TRY 9.4 billion, with orders reaching a quarterly high of 17.4 million (+53.4% YoY). This growth was driven by a combination of an increased Active Customer base (to 11.3 million) and higher purchase frequency (to 4.7). For the full year, GMV grew 54% to TRY 26.2 billion, with total orders up 53.4% to 53.5 million - Q4 2021 GMV growth of 52.5% was achieved on top of a strong 115% GMV growth in Q4 2020[21] - For the full year 2021, GMV per Active Customer grew by 23.4%, and frequency per new cohort customer increased by approximately 19% compared to 2020[22][23] Marketplace The Marketplace's share of total GMV increased to 65.4% in Q4 2021. The active merchant base grew by nearly 68% YoY to 75,000, and the number of SKUs more than doubled to 90.3 million. The company enhanced merchant support through the new HepsiPartner app and expanded its value-added services. HepsiJet delivered 52% of Marketplace parcels in Q4, and fulfillment services (HepsiLojistik) were expanded to all seven distribution centers Marketplace Metrics (as of Dec 31, 2021) | Metric | Q4 2021 | vs. Q4 2020 | | :--- | :--- | :--- | | Share of Marketplace GMV | 65.4% | +5.0 pp | | Active Merchant Base | 75.0 thousand | +67.9% | | Number of SKUs | 90.3 million | +103% | - HepsiJet delivered 52% of total Marketplace parcels in Q4 2021, a significant increase from 16% for the full year 2020[28] - Value-added services showed strong adoption: HepsiLojistik (fulfillment) served 191 merchants, and HepsiAd (adtech) was used by over 25,000 merchants in 2021[29][30] Customer Experience Hepsiburada maintained its Net Promoter Score (NPS) leadership in the Turkish e-commerce market with a score of 68. The company's logistics arm, HepsiJet, was instrumental in this, delivering 79% of retail (1P) orders on the next day in 2021 and handling nearly 50% of total platform parcels. In February 2022, the company completed the nationwide rollout of HepsiJet XL, its two-man handling service for large items, which achieved a 98% customer satisfaction score in Q4 2021 - Maintained NPS leadership in the Turkish e-commerce market with a score of 68 in December 2021[33] - HepsiJet delivered 79% of retail (1P) orders on the next day in 2021 and handled nearly 50% of total Hepsiburada parcels for the year[38] - HepsiJet XL, the two-man handling cargo service, was rolled out to all 81 cities in Turkey by February 2022 and recorded a ~98% customer satisfaction score in Q4 2021[39] New Strategic Assets (Hepsipay and HepsiExpress) Hepsipay Wallet reached 5.2 million customers by the end of 2021, with 37% of total GMV passing through it in Q4. A key development was the launch of a 'Buy Now Pay Later' (BNPL) solution in early Q1 2022. The company also acquired consumer finance company Doruk Finansman to expand its fintech capabilities. HepsiExpress, the on-demand grocery service, expanded its ecosystem to over 60 brands across roughly 2,100 stores - Hepsipay Wallet reached 5.2 million customers by year-end 2021, just six months after its launch[41] - Launched the first end-to-end digital 'Buy Now Pay Later' (BNPL) solution in the Turkish e-commerce market in Q1 2022[43] - Acquired consumer finance company Doruk Finansman in February 2022 to offer additional financing solutions to customers[44] - HepsiExpress expanded to include over 60 brands from national and regional retailers across approximately 2,100 stores in 2021[46] Social Consciousness, Diversity and Inclusion The company continued its 'Technology Empowerment for Women Entrepreneurs' program, launched in 2017. As of December 31, 2021, the program has reached 28,781 women entrepreneurs across Turkey, with approximately 13,000 benefiting from free shipping incentives. The initiative received eight awards in 2021 - As of December 31, 2021, the 'Technology Empowerment for Women Entrepreneurs' program has reached 28,781 women entrepreneurs[49] Financial Review Revenue Full-year 2021 revenue grew 18.5% to TRY 7.56 billion, while Q4 2021 revenue grew 25.4% to TRY 2.76 billion. The significant gap between revenue growth and the much higher GMV growth (54.0% for FY21) is primarily due to the strategic shift towards the Marketplace (3P) model, where revenue is recognized on a net commission basis, and an increase in customer discounts which are deducted from revenue Revenue by Segment (TRY million) | Segment | FY 2021 (TRY) | FY 2020 (TRY) | YoY % Change | | :--- | :--- | :--- | :--- | | Sale of goods (1P) | 6.13 billion | 5.30 billion | +15.7% | | Marketplace revenue (3P) | 601.3 million | 603.2 million | -0.3% | | Delivery service revenue | 740.2 million | 445.9 million | +66.0% | | Total Revenue | 7.56 billion | 6.38 billion | +18.5% | - The 0.3% decline in full-year Marketplace revenue, despite a 77.2% growth in Marketplace GMV, was mainly due to higher customer discounts, particularly in Q3 2021[59] - Delivery service revenue grew 66.0% in 2021, driven by a 53.4% rise in order numbers and an expansion of HepsiJet's services to third parties[60] Gross Contribution For the full year 2021, gross contribution increased by 21.1% to TRY 1.85 billion. However, the gross contribution margin as a percentage of GMV declined by 1.9 percentage points to 7.1%, primarily due to increased customer discounts amid intensified market competition, especially in Q3 2021. The margin showed significant sequential improvement in Q4 2021, rising 2.7 percentage points from Q3 2021 Gross Contribution Analysis | Metric | FY 2021 (TRY) | FY 2020 (TRY) | Change | | :--- | :--- | :--- | :--- | | Gross Contribution | 1.85 billion | 1.53 billion | +21.1% | | Gross Contribution Margin (% of GMV) | 7.1% | 9.0% | -1.9 pp | - The decline in the annual gross contribution margin was mainly due to increased customer discounts, particularly in Q3 2021, resulting from a slowdown in market growth and intensified competition[66] - The gross contribution margin improved significantly by 2.7 percentage points in Q4 2021 compared to Q3 2021, due to a reduction in customer discounts despite the peak shopping season[64] Operating Expenses Full-year 2021 net operating expenses increased by 42.3% to TRY 9.33 billion. This was driven by a 131.8% surge in advertising expenses to TRY 1.50 billion and a 164.2% rise in payroll expenses to TRY 859.3 million, which included share-based payments. Shipping expenses also grew 76.2%. Despite the absolute increase, net operating expenses as a percentage of GMV improved by 2.9 percentage points to 35.6%, mainly due to a lower cost of inventory sold as a percentage of GMV from the shift to the marketplace model Operating Expenses as a % of GMV | Expense Category | FY 2021 | FY 2020 | Change (pp) | | :--- | :--- | :--- | :--- | | Advertising expenses | 5.7% | 3.8% | +1.9 pp | | Payroll and staff expenses | 3.3% | 1.9% | +1.4 pp | | Shipping and packaging expenses | 3.6% | 3.2% | +0.5 pp | | Cost of inventory sold | 21.8% | 28.5% | -6.7 pp | - The 131.8% increase in advertising expenses in 2021 was due to investments in brand and growth drivers in a highly competitive environment, leading to costlier GMV growth[71][72] - The 164.2% increase in payroll expenses was due to talent onboarding for core operations and strategic assets, salary rises, and TRY 259.7 million in share-based payment expenses[73] Share Based Payment The company made a cash settlement payment of TRY 121.2 million in Q4 2021 related to its share-based payment plan, triggered by the successful IPO. For the equity-settled portion of the plan, the company recorded an expense of TRY 138.5 million as of December 31, 2021, related to vesting conditions. No provision has been made for performance target-based payments as the criteria have not yet been set - The company paid the cash-settled part of its pre-IPO incentive plan in Q4 2021, amounting to TRY 121.2 million[78] - As of December 31, 2021, the company recorded TRY 138.5 million as an expense for the equity-settled portion of the plan based on vesting conditions[79] Financial Income and Expenses For the full year 2021, the company recorded a significant increase in financial income to TRY 2.16 billion, primarily driven by TRY 2.01 billion in foreign exchange gains on its U.S. dollar-denominated bank deposits (including IPO proceeds) due to the Turkish Lira's depreciation. Financial expenses also rose to TRY 1.02 billion, mainly from foreign exchange losses on U.S. dollar-denominated trade payables and higher commission expenses for early collection of credit card receivables - Full-year financial income surged to TRY 2.16 billion from TRY 102.9 million in 2020, mainly due to a TRY 2.01 billion increase in foreign exchange gains[82] - The FX gains were generated from U.S. dollar-denominated bank deposits and financial investments following the IPO, as the USD appreciated 26.6% against the TRY during the year[82] - Full-year financial expenses increased to TRY 1.02 billion from TRY 396.4 million in 2020, driven by FX losses on USD-denominated trade payables and higher credit card commission costs[83][84] Net Income / Loss and EBITDA In Q4 2021, the company reported a net income of TRY 714.0 million, a significant turnaround from a net loss of TRY 322.8 million in Q4 2020, driven by TRY 1.66 billion in net foreign exchange gains. For the full year 2021, the net loss widened to TRY 625.8 million from TRY 474.5 million in 2020. Full-year EBITDA was negative TRY 1.63 billion, a sharp decline from negative TRY 87.8 million in 2020, resulting in an EBITDA margin of -6.2% of GMV Profitability Metrics (TRY million) | Metric | FY 2021 (TRY) | FY 2020 (TRY) | Q4 2021 (TRY) | Q4 2020 (TRY) | | :--- | :--- | :--- | :--- | :--- | | Net Income/(Loss) | (625.8 million) | (474.5 million) | 714.0 million | (322.8 million) | | EBITDA | (1.63 billion) | (87.8 million) | (676.7 million) | (182.7 million) | | EBITDA as % of GMV | (6.2)% | (0.5)% | (7.2)% | (3.0)% | - The full-year decline in EBITDA as a percentage of GMV was driven by a 1.9pp decrease in gross contribution margin, a 1.9pp rise in advertising expenses, and a 1.4pp rise in payroll expenses[88] Capital Expenditures Capital expenditures for the full year 2021 more than doubled to TRY 214.8 million, compared to TRY 100.1 million in 2020. The investments were primarily directed towards product developments for the app, website, and mobile platforms, as well as the purchase of property and equipment to support growing operations Capital Expenditures (TRY million) | Period | 2021 (TRY) | 2020 (TRY) | | :--- | :--- | :--- | | Full Year | 214.8 million | 100.1 million | | Q4 | 76.8 million | 37.3 million | Liquidity and Capital Resources As of year-end 2021, the company held a strong liquidity position with total cash and financial investments of approximately TRY 5.0 billion, significantly boosted by IPO proceeds. Free cash flow for the year was negative TRY 124.1 million, a decrease from positive TRY 341.4 million in 2020, mainly due to lower cash from operations. Negative net working capital increased, reflecting higher trade payables from increased business volume. Short-term bank borrowings were reduced Net Working Capital Negative net working capital increased to TRY 2.46 billion as of December 31, 2021, from negative TRY 1.16 billion a year prior. This increase was mainly driven by a TRY 2.04 billion rise in trade payables and payables to merchants, reflecting higher inventory procurement and operational expenses. The inventory balance also increased by TRY 869.3 million to mitigate supply chain risks - Negative net working capital more than doubled, primarily due to a significant increase in trade payables and payables to merchants[91][92] Cash Flow For the full year 2021, net cash provided by operating activities decreased significantly to TRY 89.5 million from TRY 441.4 million in 2020. Consequently, free cash flow turned negative to TRY 124.1 million from a positive TRY 341.4 million in the prior year. The decline in operating cash flow was primarily due to non-cash net foreign exchange differences and changes in working capital components like inventories and receivables Cash Flow Summary (TRY million) | Metric | FY 2021 (TRY) | FY 2020 (TRY) | | :--- | :--- | :--- | | Net Cash from Operating Activities | 89.5 million | 441.4 million | | Free Cash Flow | (124.1 million) | 341.4 million | Total Cash and Bank Borrowings As of December 31, 2021, total cash and cash equivalents stood at TRY 3.95 billion, a substantial increase from TRY 592.6 million at the end of 2020, mainly due to IPO proceeds. The company also held TRY 1.02 billion in financial investments. Approximately 98.4% of the cash was held in U.S. dollars. Short-term bank borrowings decreased to TRY 193.2 million from TRY 347.4 million - Total cash and cash equivalents increased to TRY 3.95 billion, primarily from IPO proceeds[98] - The company held an additional TRY 1.02 billion in financial investments, consisting of U.S. dollar-based mutual funds[99] - Short-term bank borrowings were reduced to TRY 193.2 million from TRY 347.4 million year-over-year[100] Consolidated Financial Statements (Unaudited) Consolidated Balance Sheets The consolidated balance sheet as of December 31, 2021, shows total assets of TRY 7.88 billion, a significant increase from TRY 1.96 billion in 2020. This was driven by a surge in current assets, particularly cash and financial investments from the IPO. Total liabilities increased to TRY 5.08 billion from TRY 2.75 billion, mainly due to higher trade payables. Total equity turned positive to TRY 2.80 billion from a deficit of TRY 787.3 million, reflecting the capital increase from the IPO Balance Sheet Summary (TRY thousands) | Item | 31 Dec 2021 (TRY Thousands) | 31 Dec 2020 (TRY Thousands) | | :--- | :--- | :--- | | Total Assets | 7.88 billion | 1.96 billion | | Total Current Assets | 7.09 billion | 1.69 billion | | Total Liabilities | 5.08 billion | 2.75 billion | | Total Current Liabilities | 4.87 billion | 2.66 billion | | Total Equity | 2.80 billion | (787.3 million) | Consolidated Statements of Comprehensive Loss The consolidated statement of comprehensive loss for the twelve months ended December 31, 2021, reports a net loss of TRY 625.8 million, compared to a net loss of TRY 474.5 million in 2020. The operating loss widened significantly to TRY 1.77 billion from TRY 181.0 million. However, this was substantially offset by net financial income, primarily from foreign exchange gains. For Q4 2021, the company posted a net income of TRY 714.0 million, a reversal from a net loss of TRY 322.8 million in Q4 2020 Comprehensive Loss Summary (TRY thousands) | Item | Twelve Months 2021 (TRY Thousands) | Twelve Months 2020 (TRY Thousands) | | :--- | :--- | :--- | | Revenues | 7.56 billion | 6.38 billion | | Operating loss | (1.77 billion) | (181.0 million) | | (Loss)/income for the period | (625.8 million) | (474.5 million) | | Basic and diluted loss per share | (1.92) | (1.46) | Consolidated Statements of Cash Flows For the year ended December 31, 2021, net cash provided by operating activities was TRY 89.5 million, a sharp decrease from TRY 441.4 million in 2020. Net cash used in investing activities was TRY 1.01 billion, mainly for purchases of financial investments and capital expenditures. Net cash provided by financing activities was TRY 3.29 billion, dominated by proceeds from the IPO. The company ended the year with a net increase in cash and cash equivalents of TRY 2.37 billion Cash Flow Summary (TRY thousands) | Item | 1 Jan – 31 Dec 2021 (TRY Thousands) | 1 Jan – 31 Dec 2020 (TRY Thousands) | | :--- | :--- | :--- | | Net cash provided by operating activities | 89.5 million | 441.4 million | | Net cash used in investing activities | (1.01 billion) | (99.9 million) | | Net cash provided by / (used in) financing activities | 3.29 billion | (18.9 million) | | Net increase in cash and cash equivalents | 2.37 billion | 322.5 million | Supplementary Information Use of Non-IFRS Financial Measures This section defines and provides reconciliations for the non-IFRS measures used in the report: EBITDA, Free Cash Flow, and Net Working Capital. Management uses these metrics to monitor underlying business performance, plan operations, and make strategic decisions. EBITDA is reconciled from net income/loss, Free Cash Flow from net cash from operating activities, and Net Working Capital from current assets and liabilities. The definition of Net Working Capital was revised in Q4 2021 to also exclude financial investments from current assets - EBITDA is defined as profit or loss for the period plus tax, financial expenses, depreciation, and amortization, less financial income[116] - Free Cash Flow is defined as net cash from operating activities less capital expenditures, plus proceeds from the sale of property and equipment[116] - Net Working Capital is defined as current assets (excluding cash, cash equivalents, and financial investments) minus current liabilities (excluding current bank borrowings and lease liabilities)[116][123] Certain Definitions This section provides definitions for key operating performance indicators used throughout the report. These include Gross Merchandise Value (GMV), Active Customer, Frequency, and Gross Contribution. These metrics are used by management and are common in the e-commerce industry to gauge performance - GMV (Gross Merchandise Value): Total value of orders sold through the platform, including VAT and shipping fees, before returns and cancellations[128] - Active Customer: A user who purchased an item within the preceding 12-month period[128] - Frequency: The average number of orders per Active Customer over the preceding 12-month period[128] Additional Information The company provides updates on two key matters. First, the acquisition of Doruk Finansman A.Ş., a Turkish consumer finance company, was completed on February 28, 2022. Second, two putative class-action lawsuits were filed against the company in New York in 2021 related to its IPO registration statement. The company believes the claims are without merit and plans to defend itself vigorously - The acquisition of consumer finance company Doruk Finansman was closed on February 28, 2022[101] - Two class-action lawsuits were filed in the U.S. alleging that the IPO registration statement omitted necessary facts. The company plans to vigorously defend against these claims[103] Forward Looking Statements This section contains standard legal disclaimers regarding forward-looking statements made in the press release. It cautions that these statements, which include financial outlook and strategic plans, are based on current expectations and are subject to numerous risks and uncertainties. These risks include macroeconomic conditions, the COVID-19 pandemic, supply chain disruptions, geopolitical conflicts, and competition. Readers are advised not to place undue reliance on these statements - Forward-looking statements include future GMV expectations, plans for new initiatives, and projections on growth and profitability[132] - These statements involve known and unknown risks, including global economic conditions, supply chain challenges, the conflict in Ukraine, and competitive pressures, which could cause actual results to differ materially[132][133]