Ann: Corporate Presentation, page-31

Hi npa869 – sorry for the slow response. I did digest what you said the other day but hadn’t had enough chance to go through all the recent announcements and due diligence required to give a worthwhile response. Today’s announcement did pull me out of the woodworks. I think some of my initial thoughts which is what held me back from a large position is still relating to the ‘revenue’ side of these contracts.

I know the revenue increase for Q3 is enormous but I could not work out how this trajectory could be maintained – essentially the company has terms (1,2,3 years) contracts with estimated contract values. In my mind the initial fees from shop setups and other work which RLG does was a given, but the variable costs from sales I presume is capped i.e. hence how the value of the contract is determined, so even if they sold 1m widgets to hit the whole contract value, if they then sold 10m widgets their upside would be capped? In that sense what I was getting towards was revenue growth is contingent on continual client wins rather than scale from a few big clients that have uncapped revenue potential? Perhaps I have misunderstood the business model in this case, please let me know?

To continue to climb 80% quarter on quarter or even a reasonably “decent’ number i.e. 30,40% I presume they need to keep hitting wins, which is not something I can reasonably bank on or anticipate?

If commissions per sale are not capped then this does indeed prove a more interesting sticking point – the right clients would give uncapped potential.

I’d be interested in reading up on and finding more info on your thoughts point (2) – as to the full offering from RLG. Is this confirmed or suspected re: some of the item you mentioned such as handling translations, payments, logistics and customer interaction? I believe you’re basing this off conjecture, correct? I guess this is where an understanding of the business needs to be fleshed out. If indeed your (3) thought holds true, then indeed increased sales being uncapped would flow onto wherever else they clip the ticket (presuming it is volume variable/influenced) : payments, logistics etc. Again, not sure if this is widely documented or communicated by the company? Presumably not something they want to disclose for competitors watching?

I too wonder where the scale creeps in vs costs incrementally increasing. Obviously the business hasn’t made a profit in recent financials, but recent increase in revenue – what this translated to in costs would dbe interesting. Many businesses you see this 80% Revenue QoQ growth, only to see costs increase > 100% (as an example) thereby rendering it net negative anyhow.

With your point (6) about the moat points of RLG – the only point I add is all of those items can be hired/built up by a company willing to pay. They can pay to translate, list and build stores, create products etc. I suppose the ‘advantage’ is how well the ‘all in one’ package is by using RLG. All of this is handled from all facets of the business – and how much of their cut is tolerable versus splitting it up piece meal and distributing to various contractors to do for you? How much is implied market knowledge by RLG to give stores a ‘leg up’ – something I can’t quantify or know reasonably currently. This ties in with whether there is any secret sauce to tapping into influencers there and logistics, or is just a mystified thing that any local in the Chinese market could easily enter and disrupt – thereby interrupting RLG’s moat.Once concern is just being in China by definition – you could be shafted the very next day at the whim of the government. There is no ‘conventional’ rules as far as the Chinese are concerned should things go offside. Part of the risk I suppose of doing business in that part of the world.

I think if I can get further comfort/clarity on where revenue is made up from…. It’s more a wonder of how much is scalable and exponential vs are RLG capped on the most they’ll be able to scalp from the contracts given they’ve given estimates (or if there is still a variable portion that could allow them to exceed these). My understanding is still that more client wins will be required to keep up momentum, so hesitant to load up just yet. Happy to be corrected!