Newegg(NEGG) - 2023 Q4 - Annual Report

Business Performance - Newegg Commerce, Inc. recognized a GMV of approximately $42 billion since 2005, processing over 193 million orders[196]. - In 2023, Newegg served over 2.5 million active customers, with 1.4 billion GMV from B2C operations and 325.6 million GMV from B2B operations[201][216][217]. - Direct sales accounted for approximately 74.2% of Newegg's GMV for the year ended December 31, 2023[221]. - The total GMV for Newegg Marketplace in 2023 was$ 369.7 million, down from $552.2 million in 2022 and$ 742.4 million in 2021, accounting for approximately 20.4% of total GMV[310]. - Newegg Marketplace generated net sales of $32.3 million in 2023, a decline from$ 47.0 million in 2022 and $63.5 million in 2021, representing 2.2% of total net sales[310]. - Net sales decreased by 13.0% from$ 1,720.3 million in 2022 to $1,497.0 million in 2023, primarily due to a decline in GMV from direct sales and marketplace businesses[329]. - The decrease in GMV was attributed to conservative consumer spending on technology products amid economic uncertainty and inflation[329]. - For the year ended December 31, 2023, the company recorded a net loss of$ 59.0 million, compared to a net loss of $57.4 million for the same period in 2022, primarily driven by a decline in net sales and gross margin[339]. Product Offering and Inventory - The company offered more than 6 million SKUs across 1,595 categories as of December 31, 2023, representing over 35,000 brands[196][201]. - As of December 31, 2023, the company offered approximately 6.2 million SKUs, with 103,100 direct sales SKUs sourced from at least 330 suppliers globally and 6.1 million SKUs on the Marketplace from over 8,000 third-party sellers[225]. - Approximately 60.6% of direct sales inventory was purchased directly from manufacturers, 36.7% from distributors, and 2.7% from other sources as of December 31, 2023[225]. - The 10 largest suppliers accounted for 71% of merchandise purchased for direct sales, indicating a strong reliance on established partnerships[225]. - Newegg's direct sales SKUs sourced from at least 325 suppliers globally totaled over 103,000 as of December 31, 2023[313]. Customer Experience and Fulfillment - Newegg achieved a 99.9% average delivery accuracy rate for orders directly fulfilled, with a 95.8% one-business day fulfillment rate in the U.S. and Canada[204]. - The company delivered over 22,850 parcels per day on average, with a fulfillment rate of 95.8% for one-business day and 98.8% for two-business-day orders in the U.S. and Canada[245]. - As of December 31, 2023, Newegg operated seven fulfillment centers covering more than 1.5 million square feet, enabling efficient order fulfillment across North America[245]. - Virtual fulfillment accounted for approximately 8.4% of direct sales for the year ended December 31, 2023, broadening product assortment and reducing stockout losses[246]. - Newegg's platforms featured over 4.8 million user-generated reviews as of December 31, 2023, enhancing the shopping experience[202]. Marketing and Traffic - In 2023, 90% of traffic was free, compared to 10% paid traffic, indicating strong word-of-mouth referrals and brand recognition[259]. - Paid search engine marketing accounted for approximately 57% of total marketing spending and generated 5% of total traffic to Newegg's websites for the year ended December 31, 2023[261]. - Affiliate marketing represented approximately 32% of total marketing expenses for the year ended December 31, 2023, making it the second largest paid marketing channel[262]. Financial Overview - Cost of sales decreased by 11.6% from$ 1,503.6 million in 2022 to $1,329.4 million in 2023, reflecting the decrease in net sales[331]. - Gross profit decreased by 22.7% from$ 216.7 million in 2022 to $167.6 million in 2023, with a profit margin decline to 11.2% from 12.6%[331]. - Selling, general and administrative (SG&A) expenses decreased to$ 238.6 million in 2023 from $266.2 million in 2022, driven by reductions in salary, merchant payment fees, and marketing expenses[332]. - Interest income increased to$ 2.3 million in 2023 from $1.2 million in 2022, while interest expense rose to$ 2.5 million from $0.7 million[333]. - Other income, net, decreased to$ 2.6 million in 2023 from $5.2 million in 2022, with significant components including sales tax rebate and property rental income[334]. - The company recorded a total gain on the sale of investments of$ 6.8 million for the year ended December 31, 2023, from the sale of 60% of its investment in Bitmain Technologies for $14.1 million and all of its investment in Bitdeer Technologies for$ 1.7 million[336]. Operational Efficiency and Technology - The technology infrastructure supports over 90 million page views per day and can process up to 0.93 million orders per day[268]. - The company maintains approximately 1,242 servers and 268 network devices across its data centers to ensure reliability and scalability[268]. - The supply chain management system includes price optimization and inventory forecasting, enhancing efficiency and cost control[271]. - The company has invested significantly in mobile technology to increase sales, focusing on improving the mobile shopping experience[269]. - The research and development team is dedicated to continuous innovation, enhancing customer experience through software development and algorithm design[276]. Corporate Developments - Newegg's corporate headquarters is set to move to a newly purchased office building in Diamond Bar, California, in the second half of 2024[297]. - The company is subject to evolving privacy and data security regulations, which may impact its operational practices and financial position[290]. - The company anticipates that existing cash and funds generated from operations will be sufficient to meet working capital needs for at least 12 months from the filing date of the annual report[361]. Leadership and Strategy - Zhitao He has been the Chairman of the Board since March 2018 and has led Hangzhou Lianluo to list on China's A share market[394]. - Under Mr. He's leadership, Hangzhou Lianluo has expanded into smart hardware, including the acquisition of Newegg and investments in VR device manufacturer Avegant[394]. - Hangzhou Lianluo's investment strategy has created a closed loop of "Software and Hardware + Platform + Channels"[394].