YMM.US
FTA spends heavily on marketing

The trucking platform operator boosted its sales and marketing spending 50% in the fourth quarter, double the rate of its revenue growth

Key Takeaways:

  • Full Truck Alliance’s revenue rose 25.3% in last year’s fourth quarter, while its net income tripled on strong investment income and new user growth
  • The company said it will continue spending heavily on sales and marketing this year after its growth in that area accelerated to 49.8% in the fourth quarter

  

By Hugh Chen

Many members of China Inc. are putting the brakes on new investment these days, choosing to focus more on improving efficiency as the nation’s economy slows and regulatory oversight increases. But don’t tell that to trucking platform operator Full Truck Alliance (YMM.US), whose latest earnings report shows it intends to stay in the expansion fast lane, at least for now, despite the challenging environment.

The operator of a digital platform that connects truckers to shippers sharply stepped up its sales and marketing spending last year, after Beijing allowed it to resume signing up new users in mid-2022 following a one-year pause for a data security review. The company’s sales and marketing expenses rose by 37.3% for all last year, including a big 49.8% year-over-year increase to 421 million yuan ($59 million) in the fourth quarter alone, according to its latest quarterly earnings report released last Thursday.

This heavy spending helped to boost revenues substantially as well, though at a slower rate than the marketing campaign. Sales for both the full-year and fourth quarter of 2023 grew by 25.3% to 8.4 billion yuan and 2.4 billion yuan, respectively.

Investors seemed to hold mixed views on Full Truck Alliance’s strategy and results. They punished the company with 5.3% decline in its share price last Thursday after the announcement, only to give back all of that and a little bit more the next day.

Following those fluctuations, the company’s shares now trade at a price-to-sales (P/S) ratio of 6.26, nearly double the 3.23 for more traditional logistics company ZTO (ZTO.US; 2057.HK) and light years ahead of the depressed 0.24 ratio for rival Gogox (2246.HK), which listed on the Hong Kong Stock Exchange in 2022. The high multiple underscores investor confidence in Full Truck Alliance’s more asset-light approach to logistics compared to more traditional companies with far larger capital costs due to their ownership of big delivery fleets.

Over the longer term, however, the company’s stock price has trended downward, following a broader movement for U.S.-listed Chinese tickers. Its Friday close of $6.52 represents just one-third of its $19 IPO price from its listing in June 2021.

Full Truck Alliance’s ramped up marketing spending has paid off in terms of user growth, as the company capitalized on pent-up demand accumulated during its one-year suspension of new user sign-ups. Full Truck Alliance got caught up in a clampdown in mid-2021, when China began requiring data security reviews for all large internet companies making overseas listings. That clampdown ultimately led to the de-listing of the Uber-like DiDi Global less than a year after it made a New York IPO without undergoing such a review.

Full Truck Alliance’s monthly active shippers – defined as registered accounts posting at least one shipping order on the company’s platforms – reached 2.24 million in the fourth quarter of 2023, up 18.7% over the same period of 2022.

The gain significantly outperformed many other major Chinese internet companies, at a time when widespread internet use in China has made user acquisition more challenging due to market saturation. By comparison, leading search engine Baidu (BIDU.US; 9888.HK) saw monthly active users for its core search app increase by just 3% in the fourth quarter.

Strong profits

Full Truck Alliance’s strong user growth powered gains across its other major operational metrics during the quarter. Fulfilled orders – defined as all matched shipping orders on its platforms, excluding cancelled ones – grew 40.4% year-on-year to 45.8 million. That surge owed directly to the company’s larger base of monthly active shippers, CFO Simon Cai said on the company’s earnings call to discuss the results.

The heavier spending didn’t dampen Full Truck Alliance’s profits, as the company managed to offset much of the heavier marketing spending with bigger investment gains and a 35% drop in its general and administrative expenses. The company’s fourth-quarter net income tripled to 588.3 million yuan year-on-year, though its non-GAAP operating income rose by a more modest 60.6% to 399 million yuan.

The company credited the improving profit partly to its adoption of innovative technologies that enhance pricing and transaction efficiency. It noted that its use of big data analytics and machine learning tools help it to set recommended prices that are better aligned with current market conditions, increasing the likelihood of freight transactions being completed on its platforms.

The return to strong growth signals Full Truck Alliance has bounced back from its earlier regulatory headwinds. Its commitment to aggressive investment despite China’s slowing economy may also appeal to some investors looking for growth stories that are increasingly difficult to find in the world’s second-largest economy. But sustaining this strategy over the long run will require it to consistently show tangible gains in user, order volume, and revenues – something that could become increasingly difficult.

Investors will also be closely following how the company can maintain its edge against intensifying competitive pressures. It faces challenges from older rivals like ForU, as well as newer entrants including logistics giant SF Express, Huolala and Gogox, which announced plans last year to ramp up its expansion into the digital freight market.

Looking ahead, Full Truck Alliance signaled it intends to keep investing heavily to stay ahead of the pack. CFO Cai said on the earnings call that the company “will continue employing a very active user acquisition strategy to expand our user base and optimize utilization of our platform resources.”

The company said it expects its growth to continue at a similar clip in the current quarter, forecasting revenue would rise at least 23.9% year-over-year to at least 2.11 billion yuan in the three months to March.

Full Truck Alliance also has an edge over its rivals in its strong cash position, which totaled 27.6 billion yuan at the end of last year, up modestly from a year earlier. That should give the company ample fuel to keep investing to defend its leading position, as it seeks to stay ahead of its rivals in the competitive field.

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