0001193125-22-194940.txt : 20220715 0001193125-22-194940.hdr.sgml : 20220715 20220715160802 ACCESSION NUMBER: 0001193125-22-194940 CONFORMED SUBMISSION TYPE: 20-F PUBLIC DOCUMENT COUNT: 133 CONFORMED PERIOD OF REPORT: 20220331 FILED AS OF DATE: 20220715 DATE AS OF CHANGE: 20220715 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MOGU Inc. CENTRAL INDEX KEY: 0001743971 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-BUSINESS SERVICES, NEC [7389] IRS NUMBER: 000000000 STATE OF INCORPORATION: E9 FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 20-F SEC ACT: 1934 Act SEC FILE NUMBER: 001-38748 FILM NUMBER: 221086387 BUSINESS ADDRESS: STREET 1: HUANGLONG WANKE CENTER, 23/F, BLDG NO.G STREET 2: NO. 77 XUEYUAN ROAD, XIHU DISTRICT CITY: HANGZHOU STATE: F4 ZIP: 310012 BUSINESS PHONE: 8657188867550 MAIL ADDRESS: STREET 1: HUANGLONG WANKE CENTER, 23/F, BLDG NO.G STREET 2: NO. 77 XUEYUAN ROAD, XIHU DISTRICT CITY: HANGZHOU STATE: F4 ZIP: 310012 FORMER COMPANY: FORMER CONFORMED NAME: Meili Inc. DATE OF NAME CHANGE: 20180619 20-F 1 d283819d20f.htm FORM 20-F Form 20-F
falseFY0001743971trueClass A ordinary shares, par value US$0.00001 per sharehttp://fasb.org/us-gaap/2021-01-31#OperatingLeaseLiabilityFor the year ended March 31, 2021, the amount of disposal in the roll forward included a reclassification adjustment of RMB46,029, representing the unrealized security holding gains for the disposed portion that were previously recorded as other comprehensive income and was reclassified as the gain from investments included in net loss in connection with the disposal.The amount due to non-VIE subsidiaries of the Company as of March 31, 2021 and 2022 mainly represented the payables resulting from technical and consulting services fee charged by the Group’s relevant PRC subsidiaries to the VIEs in accordance with exclusive consultation and service agreements.The amount due from non-VIE subsidiaries of the Company as of March 31, 2021 and 2022 mainly represented the receivables of VIEs due from the Company’s wholly-owned subsidiaries for treasury management purpose and service charge.For the year ended March 31, 2022, the Company derecognized the available-for-sale debt security investment and recycled the previously recognized fair value change recorded as other comprehensive income of RMB11,106 into the gain from investments (Note 10).Receivables from third party payment service providers represent cash due from the Group’s third party on-line payment service providers in relation to their processing of payments to the Group. As of March 31, 2021 and 2022, no allowance for doubtful accounts was provided for these receivables.The Company received initial reimbursement payment of US$935 (RMB6,297) from depositary bank in January 2019. The amount was recorded ratably as other income over a 5-year arrangement period. For the year ended March 31, 2020, 2021 and 2022, the Company has recorded RMB1,303, RMB1,267 and RMB1,201 in other income. For the year ended March 31, 2021 and 2022, the Group received an additional reimbursement payment of US$1,638 (RMB10,829) and US$448 (RMB2,857) from depositary bank for the transaction costs incurred in the prior years and the amount was recorded in other income.The receipts under custody mainly represent the amounts received by the Group from the registered users for their purchase through the Company’s online market platform, and have not been remitted to the third-party merchants yet.The customer deposits mainly represent the cash deposits as collateral collected from the merchants of the online platform. The deposit can be withdrawn immediately after the merchants terminate its online shop on the platform.The cross-border business was terminated in the year ended March 31, 2017.Goodwill impairmentDuring the year ended March 31, 2022, the addition in goodwill was in relation to the acquisition of Ruisha Technology in July 2021 (Note 3). Goodwill resulting from the acquisition has been allocated to the brands and customized services business reporting unit of the Company.Merchant penalty income represents the penalties charged to the merchants that have quality and/or service issues based on the agreements with the merchants. The Company may use the penalty received from the merchants to settle its users’ complaints. The penalties are therefore recorded in other payables when received and recognized as other income when the Company considers the possibility of the penalty to be paid out is remote.On August 8, 2020, the Group entered into an agreement with a third-party company to purchase an office building located in Hangzhou, China for a total consideration of RMB209,000. The building is under construction and is scheduled to be completed and delivered to the Group in 2023. As of March 31, 2021 and 2022, the Group has paid RMB146,300 and RMB198,550 for the office building purchase, respectively. As of March 31, 2022, the remaining installments of RMB10,450 are expected to be made in 2023 (Note 21(b)).Inter-company costs and expenses are technical and consulting services fee charged by the Group’s relevant PRC subsidiaries to the VIEs in accordance with exclusive consultation and service agreements, all of which have been eliminated in the presentation of Consolidated Statements of Operations and Comprehensive Loss.Goodwill arising from this acquisition was attributable to the synergies expected from using the operating experience of Ruisha Technology to boost the Company’s To-B business.Fair value of the noncontrolling interests was estimated based on the equity value of Ruisha Technology derived by the purchase consideration, adjusted for a discount for control premium.Net assets acquired primarily included cash and cash equivalents of RMB13,868, prepayments and other current assets of RMB8,427, property, equipment and software of RMB91, intangible assets, net of RMB39, other 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utr:Day utr:Month mogu:Customer iso4217:USD xbrli:shares iso4217:CNY xbrli:shares mogu:Vote mogu:Asset_Group mogu:Reporting_Unit
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
 
Form
20-F
 
 
(Mark One)
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
 
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 2022.
OR
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
 
SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of event requiring this shell company report 
            
    
    
For the transition period from
        
    
    
    
to
        
    
    
    
Commission file number:
001-38748
 
 
MOGU Inc.
(Exact name of Registrant as specified in its charter)
 
 
N/A
(Translation of Registrant’s name into English)
Cayman Islands
(Jurisdiction of incorporation or organization)
Huanglong Wanke Center, 23/F, Building No. G, No. 77 Xueyuan Road
Xihu District, Hangzhou, 310012
People’s Republic of China
(Address of principal executive offices)
Qi Feng, Financial Controller
Huanglong Wanke Center, 23/F, Building No. G, No. 77 Xueyuan Road
Xihu District, Hangzhou, 310012
People’s Republic of China
Tel: +86 571 8530 8201
Email: ir@mogu.com
(Name, Telephone, Email and/or Facsimile number and Address of Company Contact Person)
 
 
Securities registered or to be registered pursuant to Section 12(b) of the Act:
 
Title of each class
 
Trading
Symbol(s)
 
Name of each exchange
on which registered
American depositary shares (one American depositary share representing 300 Class A ordinary shares, par value US$0.00001 per share)
Class A ordinary shares, par value

US$0.00001 per share*

 
MOGU
 
The New York Stock Exchange
(The New York Stock Exchange)
 
*
Not for trading, but only in connection with the listing on The New York Stock Exchange of American depositary shares.
Securities registered or to be registered pursuant to Section 12(g) of the Act:
None
(Title of Class)
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
None
(Title of Class)
 
 
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report: 2,190,737,700 Class A ordinary shares, par value US$0.00001 per share, and 303,234,004 Class B ordinary shares, par value US$0.00001 per share, were outstanding as of March 31, 2022.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.     ☐  Yes    ☒  No
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.    ☐  Yes    ☒  No
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    ☒  Yes    ☐  No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation
S-T
(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    ☒  Yes    ☐  No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated
filer, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in
Rule 12b-2
of the Exchange Act.
 
Large accelerated filer  ☐      Accelerated filer  ☐                          Non-accelerated filer  ☒     Emerging growth company  
            
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act.  
 
The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.  
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
 
U.S. GAAP  ☒           International Financial Reporting Standards as issued         Other  ☐
          by the International Accounting Standards Board    ☐        
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.    ☐  Item 17    ☐  Item 18
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2
of the Exchange Act).    ☐  Yes      No
(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.    ☐  Yes    ☐  No
 
 
 

TABLE OF CONTENTS
 
       1  
     2  
       2  
ITEM 1
  Identity of Directors, Senior Management and Advisers      2  
ITEM 2
  Offer Statistics and Expected Timetable      2  
ITEM 3
  Key Information      3  
ITEM 4
  Information on the Company      54  
Item 4A.
  Unresolved Staff Comments      81  
Item 5.
  Operating and Financial Review and Prospects      81  
Item 6.
  Directors, Senior Management and Employees      99  
Item 7.
  Major Shareholders and Related Party Transactions      107  
Item 8.
  Financial Information      108  
Item 9.
  The Offer and Listing      109  
Item 10.
  Additional Information      110  
Item 11.
  Quantitative and Qualitative Disclosures about Market Risk      122  
Item 12.
  Description of Securities Other than Equity Securities      123  
       125  
Item 13.
  Defaults, Dividend Arrearages and Delinquencies      125  
Item 14.
  Material Modifications to the Rights of Security Holders and Use of Proceeds      125  
Item 15.
  Controls and Procedures      125  
Item 16A.
  Audit Committee Financial Expert      127  
Item 16B.
  Code of Ethics      127  
Item 16C.
  Principal Accountant Fees and Services      127  
Item 16D.
  Exemptions from the Listing Standards for Audit Committees      127  
Item 16E.
  Purchases of Equity Securities by the Issuer and Affiliated Purchasers      127  
Item 16F.
  Change in Registrant’s Certifying Accountant      128  
Item 16G.
  Corporate Governance      128  
Item 16H.
  Mine Safety Disclosure      128  
       129  
Item 17.
  Financial Statements      129  
Item 18.
  Financial Statements      129  
Item 19.
  Exhibits      129  
       131  
 
 
i

INTRODUCTION
Unless otherwise indicated or the context otherwise requires, references in this annual report to:
 
   
“active buyer through LVB” in a given period are to registered user account that placed one or more orders in one of the LVB channels on our platform, regardless of whether the ordered products are sold, delivered or returned (If a buyer registered two or more user accounts on our platform and placed orders on our platform through those different registered user accounts, the number of active buyers would, under this methodology, be counted as the number of the registered user accounts that such buyer used to place the orders);
 
   
“ADRs” are to the American depositary receipts which may evidence the ADSs;
 
   
“ADSs” are to our American depositary shares, each of which represents 300 Class A ordinary shares;
 
   
“Beijing Meilishikong” or “Meilishikong” are to Beijing Meilishikong Network and Technology Co., Ltd.;
 
   
“BVI” are to the British Virgin Islands;
 
   
“China” or the “PRC” are to the People’s Republic of China, excluding, for the purposes of this annual report only, Hong Kong, Macau and Taiwan;
 
   
“Class A ordinary shares” are to our Class A ordinary shares, par value US$0.00001 per share;
 
   
“Class B ordinary shares” are to our Class B ordinary shares, par value US$0.00001 per share;
 
   
“established LVB host” are to LVB host above a certain level of fan following and product sales in our LVB host incubation system;
 
   
“KOL” are to key opinion leader;
 
   
“GMV” are to gross merchandise volume, which is the total value of orders placed on our platform regardless of whether the products are sold, delivered or returned, calculated based on the listed prices of the ordered products without taking into consideration any discounts on the listed prices. Buyers on our platform are not charged for shipping fees in addition to the listed price of a product. If merchants include certain shipping fees in the listed price of a product, such shipping fees will be included in our GMV. As a prudent matter aimed at eliminating any influence on our GMV of irregular transactions, we exclude from our calculation of GMV transactions over a certain amount (RMB100,000) and transactions by users over a certain amount (RMB1,000,000) per day;
 
   
“Hangzhou Juangua” are to Hangzhou Juangua Network Co., Ltd.;
 
   
“Hangzhou Shiqu” are to Hangzhou Shiqu Information and Technology Co., Ltd.;
 
   
“LVB” are to live video broadcast;
 
   
“MOGU,” “we,” “us,” “our company” and “our” are to MOGU Inc., our Cayman Islands holding company and its subsidiaries;
 
   
“Meilishuo Beijing” are to Meilishuo (Beijing) Network Technology Co., Ltd.;
 
   
“the VIEs” are to the variable interest entities, namely, Hangzhou Juangua Network Co., Ltd. and Beijing Meilishikong Network and Technology Co., Ltd., and their subsidiaries;
 
   
“Ruisha Technology” are to Hangzhou Ruisha Technology Co. Ltd.,
 
   
“RMB” and “Renminbi” are to the legal currency of China; and
 
   
“US$,” “U.S. dollars,” “$,” and “dollars” are to the legal currency of the United States.
 
   
“Weixin Mini Program” “Mini Program” are to the innovative platform built into Wechat, a Chinese instant messaging, social media, and mobile payment app developed by Tencent Holdings Ltd.
Unless otherwise noted, all translations from Renminbi to U.S. dollars and from U.S. dollars to Renminbi in this annual report are made at a rate of RMB6.3393 to US$1.0000, the exchange rate in effect as of March 31, 2022 as set forth in the H.10 statistical release of The Board of Governors of the Federal Reserve System. We make no representation that any Renminbi or U.S. dollar amounts could have been, or could be, converted into U.S. dollars or Renminbi, as the case may be, at any particular rate, or at all.
 
1

We have prepared our financial statements in accordance with U.S. GAAP. Our fiscal year ends on March 31 and references to fiscal years 2020, 2021 and 2022 are to the fiscal years ended March 31, 2020, 2021 and 2022, respectively.
FORWARD-LOOKING INFORMATION
This annual report contains forward-looking statements that relate to our current expectations and views of future events. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from those expressed or implied by the forward-looking statements. These statements are made under the “safe harbor” provisions of the U.S. Private Securities Litigations Reform Act of 1995.
You can identify some of these forward-looking statements by words or phrases such as “may,” “will,” “expect,” “anticipate,” “aim,” “estimate,” “intend,” “plan,” “believe,” “is/are likely to,” “potential,” “continue” or other similar expressions. We have based these forward-looking statements largely on our current expectations and projections about future events that we believe may affect our financial condition, results of operations, business strategy and financial needs. These forward-looking statements include statements relating to:
 
   
our mission, goals and strategies;
 
   
our future business development, financial conditions and results of operations;
 
   
the expected growth of the online retail and fashion industries in China;
 
   
our expectations regarding demand for and market acceptance of our products and services;
 
   
our expectations regarding keeping and strengthening our relationships with users, KOLs, merchants, brand and strategic partners and other stakeholders;
 
   
competition in our industry;
 
   
our proposed use of proceeds; and
 
   
relevant government policies and regulations relating to our industry.
You should read this annual report and the documents that we refer to in this annual report and have filed as exhibits to this annual report completely and with the understanding that our actual future results may be materially different from what we expect. Other sections of this annual report discuss factors which could adversely impact our business and financial performance. Moreover, we operate in an evolving environment. New risk factors emerge from time to time and it is not possible for our management to predict all risk factors, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. We qualify all of our forward-looking statements by these cautionary statements.
You should not rely upon forward-looking statements as predictions of future events. The forward-looking statements made in this annual report relate only to events or information as of the date on which the statements are made in this annual report. Except as required by law, we undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, after the date on which the statements are made or to reflect the occurrence of unanticipated events.
PART I
 
ITEM 1
IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
Not applicable.
 
ITEM 2
OFFER STATISTICS AND EXPECTED TIMETABLE
Not applicable.
 
2

ITEM 3
KEY INFORMATION
Our Company
We are an online service provider in China, operating a leading
KOL-driven
online fashion and lifestyle platform Mogujie and providing customized online branding solutions to businesses. Through our Mogujie platform, we provide individuals with a more accessible and enjoyable shopping experience for everyday fashion, with features to allow them to live their lives online. Our KOLs contributed to most of our contents on the platform, which are mostly in live-streaming format. The contents are rich and diverse, intended to convey the latest fashion styles and trends. We also feature products from our merchants in the contents, which has led our users to purchase those products along with their shopping journey and exploration of our platform. Users can conveniently access our platform through mobile applications, including our flagship Mogujie mobile app and Mini Programs on Weixin. We actively pursue higher operational efficiency and better user experience by ways such as continuously providing users, especially female users, with more products based on their fashion and beauty consumption needs including fashion apparel, beauty makeup, personal care, food, medical beauty products on our platform. Concurrently, we guide merchants to adjust the product portfolio they offer on our platform, so that more merchants will focus on originality, design, and brand, so as to deliver differentiated fashion products to our consumers. In addition, with the acquisition of Ruisha Technology, a platform solution provider, we expect to expand our business operations to further serve business customers and deepen our business cooperation with them by providing customized solutions for their online operations.
Our Holding Company Structure and Contractual Arrangements with the VIEs
The following diagram illustrates our corporate structure, including our principal subsidiaries and the VIEs, as of the date of this annual report:
 
 
3

 
Notes:
 
(1)
Each of Messrs. Qi Chen, Yibo Wei and Xuqiang Yue, a director and beneficial owner of the shares of our company, holds 58.67%, 23.62% and 17.71% equity interests in Hangzhou Juangua, respectively.
(2)
Each of Messrs. Qi Chen, Yibo Wei and Xuqiang Yue, a director and beneficial owner of the shares of our company, holds 52.44%, 26.72% and 19.84% equity interests in Beijing Meilishikong, respectively. Mr. Yirong Xu, a beneficial owner of the shares of our company, holds the remaining 1% equity interests in Beijing Meilishikong.
We are a company incorporated in the Cayman Islands. We are not a Chinese operating Company but a Cayman Islands holding company with no equity ownership in the VIEs. We conduct our operations in China through (i) our PRC subsidiaries and (ii) the VIEs with which we have maintained contractual arrangements. Hangzhou Shiqu is our PRC subsidiary and a foreign-invested enterprise under PRC laws. Current PRC laws and regulations impose certain restrictions or prohibitions on foreign ownership of companies that engage in value-added telecommunication services and certain other businesses. To comply with PRC laws and regulations, we conduct certain business in China through Hangzhou Juangua and Beijing Meilishikong, the VIEs in the PRC which we collectively refer to as the VIEs in this annual report, based on a series of contractual arrangements by and among Hangzhou Shiqu and the VIEs. The contractual arrangements including shareholder voting proxy agreements, equity interest pledge agreements and loan agreements that have been entered into by and among our subsidiaries and the VIEs. We control the financial interests and receive the economic benefits of the business operations of the VIEs through such contractual arrangements.
As a result of the direct ownership in Hangzhou Shiqu and the contractual arrangements with the VIEs, we are regarded as the primary beneficiary of the VIEs and consolidated the financial results of the VIEs in our consolidated financial statements in accordance with U.S. GAAP. Revenue contributed by the VIEs accounted for 16.5%, 22.9% and 30.1% of our total revenues for 2020, 2021 and 2022, respectively.
However, such contractual arrangements are subject to significant risks. See “Item 4.C. Information on the Company – Organizational Structure – Contractual Arrangements with the VIEs and Their Respective Shareholders.” and “Item 3. Key Information—D. Risk Factors—Risks Related to Our Corporate Structure.” The contractual arrangements may not be as effective as direct ownership in exercising our operational control over entities in China, and we may incur substantial costs to enforce the terms of the arrangements. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our Corporate Structure— We rely on contractual arrangements with the VIEs and their respective shareholders for our business operations, which may not be as effective as direct ownership in providing operational control.” In addition, the shareholders of VIEs include Messrs. Qi Chen, Yibo Wei and Xuqiang Yue, who are also our shareholders and our directors or officers. The shareholders of the VIEs may have potential conflicts of interest with us. We cannot assure you that when conflicts arise, these shareholders will act in the best interest of our company. We also cannot assure you that these conflicts will be resolved in our favor and we may need to rely on expensive and time-consuming legal proceedings to resolve the conflicts, which may materially and adversely affect our business and financial performance. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our Corporate Structure— The shareholders of the VIEs may have potential conflicts of interest with us, which may materially and adversely affect our business and financial condition.”
 
4

There are also uncertainties under PRC laws and regulations regarding the enforceability of the whole or any part of our contractual arrangements with the VIEs. If the whole or any part of our contractual arrangements with the VIEs is found to be unenforceable, we may not be able to consolidate, derive economic interests from, or exert effective control over the VIEs, which could result in a material adverse change in the financial performance of our company and the value of our ADSs. Also, if the PRC government deems that our contractual arrangements with the VIEs do not comply with PRC regulatory restrictions on foreign investment in the relevant industries, or if the existing regulations or the interpretation of existing regulations change or are interpreted differently in the future, we could be subject to severe penalties or be forced to relinquish our interests in those operations. MOGU, its PRC subsidiaries, the VIEs and the investors of MOGU face uncertainty about potential future actions by the PRC government that could affect the enforceability of the contractual arrangements with the VIEs and, consequently, significantly affect the financial performance of our company and the VIEs as a whole. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our Corporate Structure— If the PRC government finds the agreements that established the structure for our operations in China do not comply with PRC regulations, or if these regulations or the interpretation of existing regulations change in the future, we could be subject to severe penalties or be forced to relinquish our interests in those operations.”
In addition, the PRC government’s significant authority in regulating our operations and its broad oversight over overseas offerings by, and foreign investment in, China-based issuers could significantly limit or completely hinder our ability to offer or continue to offer securities to investors. Implementation of industry-wide regulations, including data security or anti-monopoly related regulations, in this nature may cause the value of such securities to significantly decline or be of little or no value. For more details, see “Risk Factors—Risks Related to Doing Business in China— The PRC government’s significant oversight and discretion over our business operations could result in a material change in our operations and the value of our ADSs.”
Our business operations and financial results are also affected by the risks and uncertainties arising from the legal system in China, including risks and uncertainties regarding the enforcement of laws and quickly evolving rules and regulations in China, could result in a material adverse change in our operations and the value of our securities. For more details, see “Risk Factors—Risks Related to Doing Business in China—The PRC government’s significant oversight and discretion over our business operations could result in a material change in our operations and the value of our ADSs. The PRC government’s authority in regulating our operations, our overseas offerings of securities and foreign investment in us could limit our ability or prevent us from conducting future offerings of securities to investors, which may cause the value of our ADSs to significantly decline.”
Our Operations are subject to PRC Laws and Regulations
We face various risks and uncertainties related to doing business in China. Our business operations are primarily conducted in China, and we are subject to complex and evolving PRC laws and regulations. For example, we face risks associated with regulatory approvals on offshore offerings, anti-monopoly regulatory actions, and oversight on cybersecurity and data privacy, as well as the lack of inspection by the PCAOB, on our auditor, which may impact our ability to conduct certain businesses, accept foreign investments, or list on a United States stock exchange. These risks could result in a material adverse change in our operations and the value of our ADSs, significantly limit or completely hinder our ability to continue to offer securities to investors, or cause the value of such securities to significantly decline. For a detailed description of risks related to doing business in China, please refer to risks disclosed under “Item 3.D. Key Information—Risk Factors—Risks Related to Doing Business in China.”
The PRC government’s significant authority in regulating our operations and its oversight and discretion over offerings conducted overseas by, and foreign investment in, China-based issuers could significantly limit or completely hinder our ability to offer or continue to offer securities to investors. Implementation of industry-wide regulations, including data security or anti-monopoly related regulations, in this nature may cause the value of such securities to significantly decline. See “Item 3.D. Key Information—Risk Factors—Risks Related to Doing Business in China—The PRC government’s significant oversight and discretion over our business operations could result in a material change in our operations and the value of our ADSs. The PRC government’s authority in regulating our operations, our overseas offerings of securities and foreign investment in us could limit our ability or prevent us from conducting future offerings of securities to investors, which may cause the value of our ADSs to significantly decline.”
Risks and uncertainties arising from the legal system in China, including risks and uncertainties regarding the enforcement of laws and quickly evolving rules and regulations in China, could result in a material adverse change in our operations and the value of our ADSs. See “Item 3.D. Key Information—Risk Factors— Risks Related to Doing Business in China —Uncertainties with respect to the PRC legal system could adversely affect us” and “—We may be adversely affected by the complexity, uncertainties and changes in PRC regulation of internet-related businesses and companies, and any lack of requisite approvals, licenses or permits applicable to our business may have a material adverse effect on our business and results of operations.”
 
5

The Holding Foreign Companies Accountable Act
The Holding Foreign Companies Accountable Act, or the HFCAA, was enacted on December 18, 2020. Pursuant to the HFCAA, if the SEC determines that we have filed audit reports issued by a registered public accounting firm that has not been subject to inspection by the PCAOB for three consecutive years beginning in 2021, the SEC may prohibit our shares or ADSs from being traded on a national securities exchange or in
the over-the-counter
market in the United States. Since our auditor is located in China, a jurisdiction where the PCAOB has been unable to conduct inspections without the approval of the Chinese authorities, our auditor is not currently inspected by the PCAOB, which may impact our ability to remain listed on a United States or other foreign stock exchange. Furthermore, on December 2, 2021, the SEC adopted final amendments implementing the disclosure and submission requirements under the HFCAA, pursuant to which the SEC will identify a “Commission-Identified Issuer” if an issuer has filed an annual report containing an audit report issued by a registered public accounting firm that the PCAOB has determined it is unable to inspect or investigate completely because of a position taken by an authority in the foreign jurisdiction, and will then impose a trading prohibition on an issuer after it is identified as a Commission-Identified Issuer for three consecutive years. We expect to be identified as a “Commission Identified Issuer” shortly after the filing of this annual report on Form
20-F.
The related risks and uncertainties could cause the value of our ADSs to significantly decline. For more details, see “Item 3.D. Key Information—Risk Factors—Risks Related to Doing Business in China— If the PCAOB continues to be unable to inspect or fully investigate auditors who are located in China, we may be subject to additional disclosure requirements and our ADSs will be prohibited from trading in the United States under the HFCAA in 2024, or in 2023 if proposed changes to the law are enacted. The delisting of our ADSs, or the threat of their being delisted, may materially and adversely affect the value of your investment.”
Permissions Required from the PRC Authorities for Our Operations
We conduct our business primarily through our subsidiaries and the VIEs in China. Our operations in China are governed by PRC laws and regulations. As of the date of this Annual Report, nor our company or the VIEs has been involved in any investigations or review initiated by any PRC regulatory authority, or has any of them received any inquiry, notice or sanction for our operations or our issuance of securities to investors. Nevertheless, the Standing Committee of the National people’s Congress (the “SCNPC”) or PRC regulatory authorities may in the future promulgate laws, regulations or implementing rules that require us, our subsidiaries, the VIEs or their subsidiaries to obtain permissions from PRC regulatory authorities to approve the VIEs operations.
According to Article 7 of the Measures of Cybersecurity Review which was promulgated on December 28, 2021 and entered into force and effect on February 15, 2022, a network platform operator that holds personal information of more than one million users shall report to Cybersecurity Review Office for cybersecurity review when it seeks to list its securities overseas. VIEs that operate online platforms in the PRC will be recognized as network platform operators. Therefore, the Measures of Cybersecurity Review shall apply to such network platform operators. As of the date of this Annual Report, for entities that have been listed overseas before the implementation of the Measures of Cybersecurity Review and intend to issue additional shares after the initial public listing, the Measures of Cybersecurity Review does not clearly stipulate that such entities or their subsidiaries, as network platform operators, shall report to Cybersecurity Review Office for cybersecurity review. The Measures of Cybersecurity Review remains unclear on whether such requirements will be applicable to companies which are already listed in the United States, such as us. It also remains uncertain whether any future regulatory changes would impose additional restrictions on companies like us. The aforementioned policies and any related implementation rules to be enacted may subject us to additional compliance requirements in the future. As these opinions were recently issued, official guidance and interpretation of the opinions remain unclear in several respects at this time. Therefore, we cannot assure you that we will remain fully compliant with all new regulatory requirements of these opinions or any future implementation rules on a timely basis, or at all.
In addition, as of the date of this Annual Report, except for business license, foreign investment information report to the commerce administrative authority and foreign exchange registration or filing, our consolidated affiliated Chinese entities do not have to obtain any requisite licenses and permits from the PRC government authorities that are material for the business operations of our holding company, our subsidiaries and the VIEs in China. However, given the uncertainties of interpretation and implementation of relevant laws and regulations and the enforcement practice by government authorities, in the future we may be required to obtain certain licenses, permits, filings or approvals for the functions and services that we provide.
 
6

Supplemental Financial Information Related to the VIEs
The following tables present supplemental information provided in the form of condensed consolidated statements of operations, condensed consolidated balance sheets and condensed consolidated cash flows for MOGU Inc. (parent company), the primary beneficiaries of the VIEs, the VIEs, and other subsidiaries for the periods as of and for the dates presented.
Condensed Consolidated Statements of Operations
 
    
For the Year Ended March 31, 2022
 
    
MOGU Inc.
   
Other
subsidiaries
   
Primary
Beneficiaries of
VIEs
   
VIEs
   
Eliminating
adjustments
   
Consolidated
Totals
 
                                      
    
(RMB, in thousands)
 
Third-party revenues
     —         3,006       264,670       69,793       —         337,469  
Inter-company revenues
(1)
     —         —         15,779       31,816       (47,595     —    
Third-party costs and expenses
     (307,017     (201,737     (336,666     (187,958     —         (1,033,378
Inter-company costs and expenses
(1)
     —         —         (31,816     (15,779     47,595       —    
Third-party other operating income
     1,008       6,620       15,384       2,415       —         25,427  
Inter-company other operating income/(expenses)
(2)
     —         236,825       (39,127     (197,698     —         —    
Share of loss from subsidiaries and VIEs
(3)
     (334,730     (376,973     (269,972     —         981,675       —    
(Expense)/income from
non-operations
     (1,635     (2,294     4,775       12,750       —         13,596  
Loss before income tax expense
  
 
(642,374
 
 
(334,553
 
 
(376,973
 
 
(284,661
 
 
981,675
 
 
 
(656,886
Income tax (expense)/benefit
     —         (177     —         14,689       —         14,512  
Net loss
  
 
(642,374
 
 
(334,730
 
 
(376,973
 
 
(269,972
 
 
981,675
 
 
 
(642,374
Net loss attributable to
non-controlling
interests
     —         —         —         (2,574     —         (2,574
Net loss attributable to ordinary shareholders
  
 
(642,374
 
 
(334,730
 
 
(376,973
 
 
(267,398
 
 
981,675
 
 
 
(639,800
 
    
For the Year Ended March 31, 2021
 
    
MOGU Inc.
   
Other
subsidiaries
   
Primary
Beneficiaries of
VIEs
   
VIEs
   
Eliminating
adjustments
   
Consolidated
Totals
 
                                      
                                      
    
(RMB, in thousands)
 
Third-party revenues
     —         131       397,249       85,012       —         482,392  
Inter-company revenues
(1)
     —         —         32,508       25,679       (58,187     —    
Third-party costs and expenses
     (331,385     (9,153     (525,209     (95,454     —         (961,201
Inter-company costs and expenses
(1)
     —         (17     (25,680     (32,490     58,187       —    
Third-party other operating income
     6,138       12,451       25,313       5,983       —         49,885  
Share of loss from subsidiaries and VIEs
(3)
     (82,563     (88,890     1,721       —         169,732       —    
Income
from non-operations
     89,596       3,133       5,208       8,197       —         106,134  
Loss before income tax expense
  
 
(318,214
 
 
(82,345
 
 
(88,890
 
 
(3,073
 
 
169,732
 
 
 
(322,790
Income tax (expense)/benefit
     (9,757     (218     —         4,794       —         (5,181
Net (loss)/income
  
 
(327,971
 
 
(82,563
 
 
(88,890
 
 
1,721
 
 
 
169,732
 
 
 
(327,971
Net loss attributable to ordinary shareholders
  
 
(327,971
 
 
(82,563
 
 
(88,890
 
 
1,721
 
 
 
169,732
 
 
 
(327,971
 
    
For the Year Ended March 31, 2020
 
    
MOGU Inc.
   
Other
subsidiaries
   
Primary
Beneficiaries
of VIEs
   
VIEs
   
Eliminating
adjustments
   
Consolidated
Totals
 
                                      
    
(RMB, in thousands)
 
Third-party revenues
     —         5,147       735,338       94,829       —         835,314  
Inter-company revenues
(1)
     —         —         29,380       42,749       (72,129     —    
Third-party costs and expenses
     (323,492     (1,403,961     (1,071,306     (120,913     —         (2,919,672
Inter-company costs and expenses
(1)
     —         (666     (42,730     (28,733     72,129       —    
Third-party other operating income/(expense)
     5,308       (8,775     13,146       1,793       —         11,472  
Inter-company other operating (expenses)/income
(2)
     —         (6,915     —         6,915       —         —    
Share of loss from subsidiaries and VIEs
(3)
     (1,736,959     (328,916     (4,093     —         2,069,968       —    
(Expense)/income from
non-operations
     (168,495     7,880       11,349       (2,076     —         (151,342
Loss before income tax expense
  
 
(2,223,638
 
 
(1,736,206
 
 
(328,916
 
 
(5,436
 
 
2,069,968
 
 
 
(2,224,228
Income tax (expense)/benefit
     —         (753     —         1,343       —         590  
Net loss
  
 
(2,223,638
 
 
(1,736,959
 
 
(328,916
 
 
(4,093
 
 
2,069,968
 
 
 
(2,223,638
Net loss attributable to ordinary shareholders
  
 
(2,223,638
 
 
(1,736,959
 
 
(328,916
 
 
(4,093
 
 
2,069,968
 
 
 
(2,223,638
 
(1)
It represents the elimination of the intercompany service charge and other operating activities at the consolidation level. For the year ended March 31, 2020, 2021 and 2022, the service fees of variable interest entities charged by the related primary beneficiaries were RMB26.4 million, RMB27.5 million and RMB10.6 million, respectively.
 
7

(2)
It represents the elimination of the
write-off
of the amounts due from other subsidiaries by primary beneficiaries of variable interest entities and variable interest entities.
(3)
It represents the elimination of the investment among the Company, other subsidiaries, primary beneficiaries of variable interest entities, and variable interest entities.
Condensed Consolidated Balance Sheets
 
    
As of March 31, 2022
 
    
MOGU Inc.
    
Other
subsidiaries
   
Primary
Beneficiaries of
VIEs
    
VIEs
   
Eliminating
adjustments
   
Consolidated
Totals
 
                                        
    
(RMB, in thousands)
 
ASSETS
              
Cash and cash equivalents
     4,349        150,401       70,764        213,094       —         438,608  
Restricted cash
     —          —         —          809       —         809  
Short-term investments
     —          6,853       190,000        —         —         196,853  
Inventories, net
     —          —         15        64       —         79  
Loan receivables, net
     —          —         —          26,788       —         26,788  
Prepayments and other current assets
     795        2,178       18,025        34,137       —         55,135  
Amounts due from related party
     571        —         69        —         —         640  
Amounts due from intercompany
(4)
     1,066,882        70,087       1,418,077        76,920       (2,631,966     —    
Property, equipment and software
     —          182       6,282        1,238       —         7,702  
Intangible assets, net
     46,000        —         718        43,104       —         89,822  
Goodwill
     —          —         —          63,460       —         63,460  
Investments
     37,789        —         —          34,331       —         72,120  
Other
non-current
assets
     —          —         2,351        212,613       —         214,964  
Investment in subsidiaries and VIEs
(3)
     —          635,888       —          —         (635,888     —    
Total assets
  
 
1,156,386
 
  
 
865,589
 
 
 
1,706,301
 
  
 
706,558
 
 
 
(3,267,854
 
 
1,166,980
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
              
Short-term borrowings
     —          10,064       —          —         —         10,064  
Accounts payable
     —          841       16,557        552       —         17,950  
Salaries and welfare payable
     —          84       7,763        4,464       —         12,311  
Advances from customers
     —          —         812        89       —         901  
Taxes payable
     526        —         1,083        1,656       —         3,265  
Amounts due to related parties
     —          —         3,363        1,331       —         4,694  
Accruals and other current liabilities
     1,439        39,939       13,733        217,527       —         272,638  
Amounts due to intercompany
(4)
     104,015        1,073,033       49,454        1,405,464       (2,631,966     —    
Share of investment in subsidiaries and VIEs
(3)
     258,372        —         977,648        —         (1,236,020     —    
Deferred tax liabilities
     1,408        —         —          10,704       —         12,112  
Other
non-current
liabilities
     890        —         —          —         —         890  
Total liabilities
  
 
366,650
 
  
 
1,123,961
 
 
 
1,070,413
 
  
 
1,641,787
 
 
 
(3,867,986
 
 
334,825
 
Shareholder’s equity/(deficit):
              
Total MOGU Inc. shareholders’ equity/(deficit)
(3)
  
 
789,736
 
  
 
(258,372
 
 
635,888
 
  
 
(977,648
 
 
600,132
 
 
 
789,736
 
Non-controlling
interests
     —          —         —          42,419       —         42,419  
Total shareholders’ equity/(deficit)
(3)
  
 
789,736
 
  
 
(258,372
 
 
635,888
 
  
 
(935,229
 
 
600,132
 
 
 
832,155
 
Total liabilities and shareholders’ equity/(deficit)
  
 
1,156,386
 
  
 
865,589
 
 
 
1,706,301
 
  
 
706,558
 
 
 
(3,267,854
 
 
1,166,980
 
 
8

    
As of March 31, 2021
 
    
MOGU Inc.
    
Other
subsidiaries
    
Primary
Beneficiaries of
VIEs
    
VIEs
   
Eliminating
adjustments
   
Consolidated
Totals
 
                                         
    
(RMB, in thousands)
 
ASSETS
               
Cash and cash equivalents
     2,072        314,743        61,885        163,376       —         542,076  
Restricted cash
     —          —          —          808       —         808  
Short-term investments
     —          245        200,000        60,000       —         260,245  
Inventories, net
     —          6        130        104       —         240  
Loan receivables, net
     —          —          —          99,965       —         99,965  
Prepayments and other current assets
     7,934        1,803        10,557        57,385       —         77,679  
Amounts due from related party
     5,914        —          142        5       —         6,061  
Amounts due from intercompany
(4)
     1,129,423        70,088        1,397,325        312,410       (2,909,246     —    
Property, equipment and software
     —          407        8,472        1,901       —         10,780  
Intangible assets, net
     356,689        7,910        1,496        59,910       —         426,005  
Goodwill
     —          185,576        —          928       —         186,504  
Investments
     24,281        —          —          42,101       —         66,382  
Other
non-current
assets
     —          —          2,436        160,675       —         163,111  
Investment in subsidiaries and VIEs
(3)
     42,294        921,015        —          —         (963,309     —    
Total assets
  
 
1,568,607
 
  
 
1,501,793
 
  
 
1,682,443
 
  
 
959,568
 
 
 
(3,872,555
 
 
1,839,856
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
               
Short-term borrowings
     —          —          —          —         —         —    
Accounts payable
     —          342        18,875        721       —         19,938  
Salaries and welfare payable
     —          —          3,770        579       —         4,349  
Advances from customers
     —          —          —          77       —         77  
Taxes payable
     526        —          338        694       —         1,558  
Amounts due to related parties
     —          —          4,905        1,329       —         6,234  
Accruals and other current liabilities
     17,281        46,839        10,930        258,077       —         333,127  
Amounts due to intercompany
(4)
     92,345        1,412,318        23,086        1,381,497       (2,909,246     —    
Share of investment in subsidiaries and VIEs
(3)
     —          —          699,524        —         (699,524     —    
Deferred tax liabilities
     1,408        —          —          16,118       —         17,526  
Other
non-current
liabilities
     2,151        —          —          —         —         2,151  
Total liabilities
  
 
113,711
 
  
 
1,459,499
 
  
 
761,428
 
  
 
1,659,092
 
 
 
(3,608,770
 
 
384,960
 
Shareholder’s equity/(deficit):
               
Total MOGU Inc. shareholders’ equity/(deficit)
(3)
  
 
1,454,896
 
  
 
42,294
 
  
 
921,015
 
  
 
(699,524
 
 
(263,785
 
 
1,454,896
 
Total shareholders’ equity/(deficit)
(3)
  
 
1,454,896
 
  
 
42,294
 
  
 
921,015
 
  
 
(699,524
 
 
(263,785
 
 
1,454,896
 
Total liabilities and shareholders’ equity/(deficit)
  
 
1,568,607
 
  
 
1,501,793
 
  
 
1,682,443
 
  
 
959,568
 
 
 
(3,872,555
 
 
1,839,856
 
 
(3)
It represents the elimination of the investment among the Company, other subsidiaries, primary beneficiaries of variable interest entities, and variable interest entities.
(4)
It represents the elimination of intercompany balances among the Company, other subsidiaries, primary beneficiaries of variable interest entities, and variable interest entities for intercompany service charges and treasury cash management purposes.
Condensed Consolidated Cash Flows
 
    
For the Year Ended March 31, 2022
 
    
MOGU Inc.
   
Other
subsidiaries
   
Primary
Beneficiaries of
VIEs
   
VIEs
   
Eliminating
adjustments
   
Consolidated
Totals
 
                                      
    
(RMB, in thousands)
 
Inter-company receipts/(payments) for service charge 
(5)
     —         —         40,409       (40,409     —         —    
Inter-company (payments)/receipts for other operating activities 
(6)
     —         (40,042     (91,008     131,050       —         —    
Operating activities with external parties
     (1,642     (11,210     (32,492     (69,065     —         (114,409
Net cash (used in)/provided by operating activities
  
 
(1,642
 
 
(51,252
 
 
(83,091
 
 
21,576
 
 
 
—  
 
 
 
(114,409
Investment in intercompany
(7)
     —         (84,194     —         —         84,194       —    
Receipt of loans repayment from subsidiaries
     24,543       —         —         —         (24,543     —    
Other investing activities
     (10,935     (11,037     7,776       28,143       —         13,947  
 
9

 
Net cash provided by/(used in) investing activities
  
 
13,608
 
 
 
(95,231
 
 
7,776
 
  
 
28,143
 
  
 
59,651
 
 
 
13,947
 
Capital contribution from Group companies
(7)
     —         —         84,194        —          (84,194     —    
Repayment of loan from Group companies
     —         (24,543     —          —          24,543       —    
Other financing activities
     (9,689     10,139       —          —          —         450  
Net cash (used in)/provided by financing activities
  
 
(9,689
 
 
(14,404
 
 
84,194
 
  
 
—  
 
  
 
(59,651
 
 
450
 
 
    
For the Year Ended March 31, 2021
 
    
MOGU
Inc.
   
Other
subsidiaries
   
Primary
Beneficiaries of
VIEs
   
VIEs
   
Eliminating
adjustments
   
Consolidated
Totals
 
                                      
    
(RMB, in thousands)
 
Inter-company receipts/(payments) for service charge
(5)
     —         —         39,859       (39,859     —         —    
Inter-company (payments)/receipts for other operating activities
(6)
     —         (583     (67,734     68,317       —         —    
Operating activities with external parties
     3,322       (17,626     (60,495     (3,132     —         (77,931
Net cash provided by/(used in) operating activities
  
 
3,322
 
 
 
(18,209
 
 
(88,370
 
 
25,326
 
 
 
—  
 
 
 
(77,931
Investment in intercompany
(7)
     —         (32,549     —         —         32,549       —    
Loans to subsidiaries
     (61,651     —         —         —         61,651       —    
Other investing activities
     99,097       7,185       (633     (202,312     —         (96,663
Net cash provided by/(used in) investing activities
  
 
37,446
 
 
 
(25,364
 
 
(633
 
 
(202,312
 
 
94,200
 
 
 
(96,663
Capital contribution from Group companies
(7)
     —         —         32,549       —         (32,549     —    
Borrowings under loan from Group companies
     —         61,651       —         —         (61,651     —    
Other financing activities
     (119,249     —         —         —         —         (119,249
Net cash (used in)/provided by financing activities
  
 
(119,249
 
 
61,651
 
 
 
32,549
 
 
 
—  
 
 
 
(94,200
 
 
(119,249
 
    
For the Year Ended March 31, 2020
 
    
MOGU
Inc.
   
Other
subsidiaries
   
Primary
Beneficiaries of
VIEs
   
VIEs
   
Eliminating
adjustments
   
Consolidated
Totals
 
                                      
    
(RMB, in thousands)
 
Inter-company receipts/(payments) for service charge
(5)
     —         —         —         —         —         —    
Inter-company (payments)/receipts for other operating activities
(6)
     —         21,123       (217,919     196,796       —         —    
Operating activities with external parties
     5,803       (10,852     (296,655     (10,085     —         (311,789
Net cash provided by/(used in) operating activities
  
 
5,803
 
 
 
10,271
 
 
 
(514,574
 
 
186,711
 
 
 
—  
 
 
 
(311,789
Investment in intercompany
(7)
     —         (524,183     (960     —         525,143       —    
Loans to subsidiaries
     (439,677     —         —         —         439,677       —    
Other investing activities
     33,533       (32,388     (75,643     (38,652     —         (113,150
Net cash (used in)/provided by investing activities
  
 
(406,144
 
 
(556,571
 
 
(76,603
 
 
(38,652
 
 
964,820
 
 
 
(113,150
Capital contribution from Group companies
(7)
     —         —         524,183       960       (525,143     —    
Borrowings under loan from Group companies
     —         439,677       —         —         (439,677     —    
Other financing activities
     (29,332     —         —         —         —         (29,332
Net cash (used in)/provided by financing activities
  
 
(29,332
 
 
439,677
 
 
 
524,183
 
 
 
960
 
 
 
(964,820
 
 
(29,332
 
(5)
It represents the cash flows between primary beneficiaries of variable interest entities and the variable interest entities for intercompany service charges in accordance with exclusive consultation and service agreements. There was no inter-company receipt/(payment) for service charges for the year ended March 31, 2020.
 
10

  (6)
It represents the cash flows between other subsidiaries, primary beneficiaries of variable interest entities and the variable interest entities for other intercompany service charges and treasury cash management purpose. The other intercompany service charges mainly represent the cash receipt/(payment) for services provided by the variable interest entities to other intercompany entities.
  (7)
It represents the cash flows related to capital injections among the Company, other subsidiaries, primary beneficiaries of variable interest entities, and variable interest entities.
Transfers of Cash within the Group
We have established stringent controls and procedures for cash flows within our organization. Each transfer of cash between our company and a subsidiary or a VIE is subject to internal approval. The cash inflows from investment activities of our company were primarily generated from the proceeds we received from our public offerings of ordinary shares and other financing activities. MOGU Inc. transfers cash to its wholly-owned Hong Kong subsidiaries by making capital contributions or providing operating cash, and the Hong Kong subsidiaries transfer cash to the subsidiaries in China by making capital contributions or providing operating cash to them. Because MOGU Inc. and its subsidiaries control the VIEs through contractual arrangements, MOGU Inc. and its subsidiaries are not able to make direct capital contribution to the VIEs. However, MOGU Inc. and its subsidiaries may transfer cash to the VIEs by loans or by making payment to the VIEs for inter-group transactions.
Under PRC laws and regulations, our PRC subsidiaries and the VIEs are subject to certain restrictions with respect to paying dividends or otherwise transferring any of their net assets to us. Remittance of dividends by a wholly foreign-owned enterprise out of China is also subject to examination by the banks designated by State Administration of Foreign Exchange, or the SAFE. Our PRC subsidiaries have not paid dividends and will not be able to pay dividends until they generate accumulated profits and meets the requirements for statutory reserve funds.
For purposes of illustration, the following discussion reflects the hypothetical taxes that might be required to be paid within China, assuming that: (i) we have taxable earnings, and (ii) we determine to pay dividends in the future.
 
    
Tax calculation (1)
     
Hypothetical
pre-tax
earnings
   100     %  
Tax on earnings at statutory rate of 25%
(2)
   (25)     %  
Net earnings available for distribution
   75     %  
Withholding tax at standard rate of 10%
(3)
   (7.5)     %  
Net distribution to Parent/Shareholders
   67.5     %  
Notes:
 
  (1)
For purposes of this example, the tax calculation has been simplified. The hypothetical book
pre-tax
earnings amount, not considering timing differences, is assumed to equal taxable income in China.
 
  (2)
Certain of our subsidiaries qualifies for a 15% preferential income tax rate in China. For purposes of this hypothetical example, the table above reflects a maximum tax scenario under which the full statutory rate would be effective.
 
  (3)
The PRC Enterprise Income Tax Law imposes a withholding income tax of 10% on dividends distributed by a foreign invested enterprise to its immediate holding company outside of China. A lower withholding income tax rate of 5% is applied if the FIE’s immediate holding company is registered in Hong Kong or other jurisdictions that have a tax treaty arrangement with China, subject to a qualification review at the time of the distribution. For purposes of this hypothetical example, the table above assumes a maximum tax scenario under which the full withholding tax would be applied.
MOGU Inc. has not declared or paid any cash dividends, nor has any plan currently to pay any cash dividends on our ordinary shares in the foreseeable future. We currently intend to retain most, if not all, of our available funds and any future earnings to operate and expand our business. We currently do not have any plan to require our PRC subsidiaries to distribute their retained earnings and we intend to use the retained earnings for the operations and expansion of our business in the PRC. See “Item 8. Financial Information—A. Consolidated Statements and Other Financial Information—Dividend Policy.” For PRC and United States federal income tax considerations of an investment in our ADSs, see “Item 10. Additional Information—E. Taxation.”
For the years ended March 31, 2020, 2021 and 2022, no assets other than cash were transferred within our organization.
 
11

A.    
Selected Financial Data
[Reserved]
B.    
Capitalization and Indebtedness
Not applicable.
C.    
Reasons for the Offer and Use of Proceeds
Not applicable.
D.    
Risk Factors
 
12

Summary of Risk Factors
Investing in our Ordinary Shares involves significant risks. You should carefully consider all of the information in this annual report before making an investment in our Ordinary Shares. Below please find a summary of the principal risks we face. These risks are discussed more fully in the section titled “Item 3. Key Information—D. Risk Factors” in this annual report.
Risks Related to Our Business and Industry
 
   
Our limited operating history across our new business initiatives makes it difficult to evaluate our business prospects.
 
   
If we are unable to execute our monetization and other operational strategies effectively, our business and prospects may be materially and adversely affected.
 
   
We have a limited history operating under our current
KOL-driven,
LVB-focused
business model and limited history expanding our business to providing online branding solutions to businesses and may be unable to achieve or sustain growth or profitability or reasonably predict our future results.
 
   
Any harm to our brand or failure to maintain and enhance our brand recognition may materially and adversely affect our business and results of operations.
 
   
Our business is subject to the changing needs and preferences of our users. If we fail to anticipate buyer needs and provide products and services to attract and retain buyers, or fail to adapt our services or business model to changing buyer needs or emerging industry standards, our business may be materially and adversely affected.
 
   
Our business, financial condition and results of operations has and is expected to continue to adversely affected by the
COVID-19
pandemic.
Risks Related to Our Corporate Structure
We control and receive the economic benefits of the business operations of the VIEs through the contractual arrangements and we consolidate the financial results of the VIEs under U.S. GAAP for accounting purposes; however, the contractual arrangements have not been tested in a court of law and are subject to significant risks, including.
 
   
If the PRC government finds the agreements that established the structure for our operations in China do not comply with PRC regulations, or if these regulations or the interpretation of existing regulations change in the future, we could be subject to severe penalties or be forced to relinquish our interests in those operations.
 
   
We rely on contractual arrangements with the VIEs and their respective shareholders for our business operations, which may not be as effective as direct ownership in providing operational control.
 
   
Any failure by the VIEs or their shareholders to perform their obligations under our contractual arrangements with them would have a material and adverse effect on our business.
 
   
The shareholders of the VIEs may have potential conflicts of interest with us, which may materially and adversely affect the business and financial condition.
 
   
Contractual arrangements in relation to the VIEs may be subject to scrutiny by the PRC tax authorities and they may determine that we or our PRC consolidated affiliated entity owes additional taxes, which could negatively affect our financial condition and the value of your investment.
 
   
We may lose the ability to use and enjoy assets held by the VIEs that are material to the operation of certain portion of the business if the entity goes bankrupt or becomes subject to a dissolution or liquidation proceeding.
 
13

Risks Related to Doing Business in China
 
   
The PRC government’s significant oversight and discretion over our business operations could result in a material change in our operations and the value of our ADSs. The PRC government’s authority in regulating our operations, our overseas offerings of securities and foreign investment in us could limit our ability or prevent us from conducting future offerings of securities to investors, which may cause the value of our ADSs to significantly decline.
 
   
The approval of, or report and fillings with the CSRC or other PRC government authorities may be required in connection with our offshore offerings under PRC law, and, if required, we cannot predict whether or for how long we will be able to obtain such approval or complete such filing and report process.
 
   
Litigation and negative publicity surrounding China-based companies listed in the U.S. may result in increased regulatory scrutiny of us and negatively impact the trading price of the ADSs and could have a material adverse effect upon our business, including our results of operations, financial condition, cash flows and prospects.
 
   
Changes in China’s political, economic or social conditions or government policies could have a material adverse effect on our business and operations.
 
   
Uncertainties with respect to the PRC legal system could adversely affect us.
 
   
The PCAOB is currently unable to inspect our auditor in relation to their audit work performed for our financial statements and the inability of the PCAOB to conduct inspections over our auditor deprives our investors with the benefits of such inspections.
 
   
If the PCAOB continues to be unable to inspect or fully investigate auditors who are located in China, we may be subject to additional disclosure requirements and our ADSs will be prohibited from trading in the United States under the HFCAA in 2024, or in 2023 if proposed changes to the law are enacted. The delisting of our ADSs, or the threat of their being delisted, may materially and adversely affect the value of your investment.
Risks Related to the ADSs
 
   
We are a Cayman Islands holding company conducting our operations primarily through our PRC subsidiaries, the VIEs and their subsidiaries in China; we have no equity ownership in the VIEs and their subsidiaries. Holders of our ordinary shares or the ADSs hold equity interest in our Cayman Islands holding company, and do not have direct or indirect equity interests in the VIEs and their subsidiaries.
 
   
The trading price of the ADSs is likely to be volatile, which could result in substantial losses to investors.
 
   
We cannot guarantee that any share repurchase program will be fully consummated or that any share repurchase program will enhance long-term shareholder value, and share repurchases could increase the volatility of the trading price of the ADSs and could diminish our cash reserves.
 
   
If securities or industry analysts do not publish research or reports about our business, or if they adversely change their recommendations regarding the ADSs, the market price for the ADSs and trading volume could decline.
Risks Related to Our Business and Industry
Our limited operating history across our new business initiatives makes it difficult to evaluate our business prospects.
We have a limited operating history across some of our new business initiatives, including focusing our platform on the provision of fashion content in media formats, the use of live video broadcasts and other engaging socially-oriented sales methods, the development and offerings of new forms of commissions and marketing services, the provision of other new service offerings targeting different customer bases and user behaviors as well as the expansion and elevation of the supply chain of our fashion ecosystem, in particular our effects to optimate the fashion product supply chain and support deep collaboration between merchants and key opinion leaders on our platform. Also, as we expand to the business areas of providing online platform operation solutions to merchants, we might not be able to provide services or solutions that ensure successful improvements on the functionality of their online platform, their business performance or their market expansion needs. As a result, our historical performance may not be indicative of our future financial results. In addition, we may continue to introduce and implement new business strategies and initiatives as we continue to respond to changing market trends and user preferences. We cannot assure you that we will be able to successfully implement our new business initiatives or achieve our expected growth rate, or at all, as our business model continues to evolve in the future. Our overall business growth may continue to be negative, and our revenues may continue to decline for a number of possible reasons, some of which are beyond our control, including decreasing consumer spending, increasing competition, declining growth of our overall market or industry, the emergence of alternative business models, changes in rules, regulations, government policies or general economic conditions. Moreover, we may not have sufficient resources to address the risks associated with operating in rapidly evolving markets. If we fail to achieve revenue growth or if our new business initiatives fail to yield positive user acceptance or economic returns as expected or if such initiatives cause any material disruption to our business model, investors’ perceptions of our business and prospects may be materially and adversely affected and the market price of the ADSs could decline. You should consider our prospects in light of the risks and uncertainties that companies with a limited operating history may encounter.
 
14

If we are unable to execute our monetization and other operational strategies effectively, our business and prospects may be materially and adversely affected.
To achieve revenue growth, we will need to, among other things, continue to strengthen our brand, grow our user base in a cost-effective manner, enhance user experience, expand our content and product offerings, and strengthen our ability to successfully monetize our user base and products and services. However, we cannot assure you that we will be able to execute any of such strategies for monetization and business expansion successfully. We recorded net losses of RMB2,223.6 million and RMB328.0 million and RMB642.4 million (US$101.3 million) for the years ended March 31, 2020, 2021 and 2022, respectively.
In addition, growing our business requires significant efforts and resources from our management. For instance, we need to manage and continue to manage our relationships with KOLs, merchants and businesses with branding needs to ensure a sufficient and timely supply of quality content, promotion of products and provision of services. Such new offerings may not achieve broad user acceptance, present new and difficult technological or operational challenges and subject us to claims if the individual users and business owners are not satisfied with the quality of the content, products or services or do not have satisfactory experience in general. Also, we will need to manage our relationships with third-party service providers to ensure the efficient performance of our technology platform and continue to expand, train, manage and motivate our workforce. In addition, we will need to continue to improve our transaction processing, technological, operational and financial systems, policies, procedures and controls. All of these endeavors involve risks and will require significant management, financial and human resources. We cannot assure you that we will be able to implement our strategies successfully. If we are not able to achieve growth in our financials effectively, or at all, our business and prospects may be materially and adversely affected.
We have a limited history operating under our current
KOL-driven,
LVB-focused
business model and limited history expanding our business to providing online branding solutions to businesses and may be unable to achieve or sustain growth or profitability or reasonably predict our future results.
In 2019, we made a strategic decision to transition from our traditional
e-commerce
business model to our current
KOL-driven,
LVB-focused
interactive
e-commerce
model. As a result, we have become more of a facilitator between merchants and KOLs rather than directly serving our users. Although connection exists between the two business models, and we have been leveraging our existing experience and expertise in transitioning to our current business model, we still have a limited history operating under our current business model. As such, it is difficult to evaluate our current business and future prospects, which may increase the risk of your investment.
In July 2021, we acquired Ruisha Technology to expand and further utilize MOGU’s merchants’ service capabilities that we have been building over the years. We expect to be able to cooperate with more brands through Ruisha Technology, enriching our platform with more fashionable and high-quality product offerings for our users. However, Ruisha Technology have a limited history operating under our current business model. We might have difficulties fully integrate Ruisha Technology’s business operation into ours in a timely and cost-efficient manner, or at all. As such, it is difficult to evaluate our current business and future prospects, which may increase the risk of your investment.
Our revenues decreased by 22.2% from RMB1,074.3 million in the year ended March 31, 2019 to RMB835.3 million in the year ended March 31, 2020, decreased further by 42.3% from RMB835.3 million in the year ended March 31, 2020 to RMB482.4 million in the year ended March 31, 2021, and decreased by 30.0% from RMB482.4 million in the year ended March 31, 2021 to RMB337.5 million (US$53.2 million) in the year ended March 31, 2022. We incurred net loss of RMB2,223.6 million, RMB328.0 million and RMB642.4 million (US$101.3 million) in the years ended March 31, 2020, 2021 and 2022, respectively. The restructuring of our business mix towards a
KOL-driven,
LVB-focused
business model has negatively affected our ability to achieve growth and profitability in the last two years, and we may not be able to generate enough revenue to achieve growth or profitability for the foreseeable future. There can be no assurance that we will be able to achieve either revenue growth or profitability under our current business model.
Any harm to our brand or failure to maintain and enhance our brand recognition may materially and adversely affect our business and results of operations.
We believe that the recognition and reputation of our brands among our users, KOLs and our merchants and brand partners are crucial to our business and competitiveness. Many factors, some of which are beyond our control, are important to maintaining and enhancing our brands and may negatively impact our brands and reputation if not properly managed. These factors include our ability to:
 
   
maintain superior shopping experience, particularly as user preferences evolve;
 
15

   
maintain and grow our user base and keep our users highly engaged;
 
   
maintain and grow our content offering and ensure access to content creators, including KOLs;
 
   
maintain the popularity, attractiveness and quality of the content and products we offer;
 
   
enhance our reputation and goodwill generally and in the event of any negative publicity on product quality, customer services, internet security, or other issues affecting us or our industry in China; and
 
   
maintain our relationships with merchants, brand partners and other service providers.
Our business is subject to the changing needs and preferences of our users. If we fail to anticipate buyer needs and provide products and services to attract and retain buyers, or fail to adapt our services or business model to changing buyer needs or emerging industry standards, our business may be materially and adversely affected.
The
e-commerce
market in which we operate as well as buyer needs and preferences are constantly evolving. As a result, we must continuously respond to changes in the market and buyer demand and preferences to remain competitive, grow our business and maintain our market position. We intend to further diversify our products and service offerings to enhance to our revenue sources in the future. New products and services, new types of buyers or new business models may involve risks and challenges we do not currently face. Any new initiatives may require us to devote significant financial and management resources and may not perform as well as expected.
Furthermore, we may have difficulty in anticipating buyer demand and preferences, and the products offered on our platforms may not be accepted by the market or be rendered obsolete or uneconomical. Therefore, any inability to adapt to these changes may result in a failure to capture new buyers or retain existing buyers, the occurrence of which would materially and adversely affect our business, financial condition and results of operations.
In addition, to remain competitive, we must continue to enhance and improve the responsiveness, functionality and features of our platforms. The internet and
e-commerce
markets are characterized by rapid technological evolution, changes in buyer requirements and preferences, frequent introductions of new products, features and services embodying new technologies and the emergence of new industry standards and practices, any of which could render our existing technologies and systems obsolete. Our success will depend, in part, on our ability to identify, develop and adapt to new technologies useful in our business, and respond to technological advances and emerging industry standards and practices, in particular with respect to mobile internet, in a cost-effective and timely way. We cannot assure you that we will be successful in these efforts.
We may experience a decline in the popularity of online shopping in general, or any failure by us to adapt our platform and improve the shopping experience of our users in response to fashion trends and users’ preferences may adversely affect our business and results of operations.
We offer products and content with a primary focus on providing a superior shopping experience. Our future growth depends on our ability to continue to attract new users as well as users’ continued spending on our platform. The apparel market is cyclical and fashion trends and users’ purchasing needs and personal preferences are changing frequently. Consequently, we must stay abreast of fashion and lifestyle trends and respond to changes in the market and user preferences. Since our inception, we have been focused on developing new features and offerings on our platform to satisfy the ever-changing needs of our users. We have been actively tracking user traffic and feedback to identify trending content and encourage our KOLs to create content and our merchants to supply products that cater to users’ changing tastes. We have also been exploring new interfaces and functions of our mobile apps to prioritize fashion content offerings on our platform. However, these features and offerings are relatively new, do not have a long operating track record and may fail to be accepted by our users. They may also become obsolete or unappealing by competition or developments in the industry. The long-term viability and prospects of our business model are subject to the changing user preferences and industry standards, making it difficult to assess our future prospects or forecast our future results. Any of these changes may require us to reevaluate our business model and adopt significant changes to our strategies and business plan. If we fail to adapt to these changes, continue to expand and diversify our content and product offerings, identify trends, or maintain the quality of our content and products, our users may lose interest in our platform and thus may visit our platform less frequently or even stop visiting our platform, which in turn may materially and adversely affect our business, financial condition, and results of operations.
 
16

We face intense competition. If we do not compete successfully against existing or new competitors, we may lose market share, users, KOLs and other business partners.
We face intense competition particularly on our
e-commerce,
fashion content and technology elements. Our current or potential competitors include major
e-commerce
platforms in China, major traditional and
brick-and-mortar
retailers in China and fashion and social media companies in China focused on fashion and lifestyle industries. In addition, we face competition from a wide range of content platforms in China. Our competitors may have longer operating histories, greater brand recognition, larger user and merchant bases or greater financial, technical or marketing resources than we do. Competitors may leverage their brand recognition experience and resources to compete with us in a variety of ways, thereby increasing their respective market and mind shares. Some of our competitors may be able to secure more favorable terms from merchants, third-party service providers and other business partners, devote greater resources to marketing and promotional campaigns, adopt more aggressive pricing policies and devote substantially more resources to their platform and systems development than us.
There can be no assurance that we will be able to compete successfully against current or future competitors, and such competitive pressures may have a material and adverse effect on our business, financial condition and results of operations. Failure to compete successfully against existing or new competitors may cause us to lose market share, users, KOLs and other business partners. Any disputes with current or future competitors may lead us to public complaints or publicity campaigns against us, which may cause us to incur significant costs to defend against these activities and harm our business.
If we are unable to provide superior user experience, we may not be able to maintain or grow our user base or keep our users highly engaged. As a result, our revenues, margins and business prospects may be materially and adversely affected.
The success of our business largely depends on our ability to provide superior user experience in order to maintain and grow our user base and keep our users highly engaged on our platform, which in turn depends on a variety of factors. These factors include our ability to continue to offer attractive and relevant fashion content in engaging formats and stylish products, source quality merchants to respond to user demands and preferences, maintain the quality of our products and services, provide reliable and user-friendly mobile application features for our users to browse for content and products, and provide high-quality customer service. If our users are not satisfied with our content, products or services, or our platform is severely interrupted or otherwise fail to meet our users’ requests, our reputation and user loyalty could be adversely affected.
Our merchants rely on third-party delivery service providers to deliver products to our users. Interruptions to or failures in the delivery services could prevent the timely or successful delivery of products purchased on our platform. These interruptions or failures may be due to unforeseen events that are beyond our control or the control of third-party delivery service providers, such as inclement weather, natural disasters or labor unrest. If products on our platform are not delivered on time or are delivered in a damaged state, users may refuse to accept our products and have less confidence in our services. Any failure to provide high-quality delivery services to our users may negatively impact the shopping experience of our users, damage our reputation and cause us to lose users.
In addition, if users cannot obtain satisfactory customer services after they purchase products with us, our brand and user loyalty may be adversely affected. In addition, any negative publicity or poor feedback regarding our customer service may harm our brand and reputation and in turn cause us to lose users and market share.
As a result, if we are unable to continue to maintain our user experience and provide high-quality customer service, we may not be able to retain or attract users or keep them highly engaged with the fashion content and products we offer on our platform, which may have a material adverse effect on our business, financial condition and results of operations.
A substantial portion of our GMV and revenue is generated from a limited number of KOLs who stream on our platform. We may experience a decrease in purchases on our platform.
In the years ended March 31, 2020, 2021 and 2022, our
top-10
KOLs contributed 23.2%, 43.7% and 57.3% of our total GMV, respectively. The popularity of our KOLs is a significant driver of our growth in active buyers through LVB, which in turn drives our GMV and revenue. KOLs with more fans are able to reach a wider audience when they promote or sell products on their LVB, and they also tend to attract more merchants to our platform for partnership opportunities. As of March 31, 2020, 2021 and 2022, our
top-10
KOLs had 9.4%, 16.2% and 20.8% of the total number of fans of all of our KOLs, respectively.
Our concentrated active buyer acquisition from a few
top-tier
KOLs exposes us to risk of significant decreases in, or impediments to the growth of, our GMV and revenue if the number of fans or the popularity of any of such KOLs decreases or fails to grow. We anticipate that our
top-tier
KOLs will continue to contribute to the majority of our total net revenues in the near future, as it will take time for other KOLs to develop their fan base and thus our active buyer base. We cannot assure you that our
top-tier
KOLs will be able to retain their popularity, or our other KOLs will be able to increase their number of fans. If the popularity of our
top-tier
KOLs decreases and our other KOLs fail to enlarge their fan base meaningfully, it may materially and adversely affect our business, prospects, financial performance and results of operations.
 
17

If we fail to maintain and expand our relationships with content creators, in particular KOLs, or if our KOLs fail to produce popular fashion contents, or if we fail to provide online branding solutions through Ruisha Technology our revenues and results of operations will be adversely affected.
We rely on our content creators, in particular KOLs, to present popular fashion content on our platform and promote products that appeal to our existing and potential users. In addition, some of our major KOLs are also merchants on our platform and have contributed to our total GMV. We cannot assure you that we will be able to control, incentivize and retain major KOLs to provide popular fashion content and stimulate purchases on our platform. In addition, we may experience content creator attrition in the ordinary course of business resulting from several factors, such as losses to competitors and perception that our platform is ineffective as a monetization channel for content creators. If we fail to retain our major content creators or experience significant content creators attrition, or if we are unable to incubate and attract new content creators, our revenues and results of operations may be materially and adversely affected.
We and our fashion influences may terminate our cooperative relationships at any time. If any of our major KOLs decides not to continue cooperation with us, the popularity of our platform may decline and the number of our users may decrease, which could materially and adversely affect our results of operations and financial condition. In addition, we may have disputes with our KOLs with respect to their compliance with our content control policies and live video broadcast standards and the disciplinary measures that we take against them due to violation of these policies or failure to meet these standards from time to time, which may cause KOLs to be dissatisfied with our platform. If popular KOLs cease to contribute content to or curate products on our platform, or the fashion content provided by them fails to attract users, we may experience a decline in user traffic and user engagement, which may have material and adverse impact on our results of operations and financial conditions.
If we fail to observe the latest trends and timely and effectively guide our content creators, or if our content creators fail to identify fashion trends or produce popular fashion content, our users may view our platform less attractive and our financial condition and results of operations may be materially and adversely affected.
In addition, we expect to maintain and develop cooperation with our major customers and busines partners by providing quality branding services through Ruisha Technology. If we fail to incorporate Ruisha Technology as part of our business and fail to maintain our business relationships, our major customers or business partners may terminate their cooperation with us, which could materially and adversely affect our results of operations and financial condition. In addition, Ruisha Technology might have disputes with our major customers or business partners when providing online services and curtail our ongoing business relationship with those customers.
Any compromise of the cybersecurity of our platform could materially and adversely affect our business, operations and reputation.
Our products and services involve the storage and transmission of users’ and other customers’ information, and security breaches expose us to a risk of loss of this information, litigation and potential liability. Our security measures may also be breached due to employee error, malfeasance or otherwise. Additionally, outside parties may attempt to fraudulently induce employees, users or other customers to disclose sensitive information in order to gain access to our data or our users’ or other customers’ data or accounts, or may otherwise obtain access to such data or accounts. As the techniques used to obtain unauthorized access, disable or degrade service or sabotage systems change frequently and often are not recognized until launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures. If an actual or perceived breach of our security occurs, the market perception of the effectiveness of our security measures could be harmed, we could lose users and other customers, and may be exposed to significant legal and financial risks, including legal claims and regulatory fines and penalties. Any of these actions could have a material and adverse effect on our business, reputation and results of operations.
 
18

Any quality issues of the products offered by our merchants or brand partners or any negative publicity with respect to us, our KOLs, merchants and other partners, as well as the industry in which we operate, our business and results of operations may be materially and adversely affected.
Public perception that
non-authentic,
counterfeit or defective products are sold on our platform or that we or the merchants on our platform do not provide satisfactory customer services, even if meritless or unsuccessful, could damage our reputation, diminish the value of our brand, undermine the trust and credibility we have established and have a negative impact on our ability to attract new users or retain our existing users, and could divert our management’s attention and other resources from other business concerns. We may be required by laws and regulations to bear joint and several liability with merchants on our platform and other partners that we cooperate with if we are unable to provide the true names, addresses and valid contact information of such merchants or partners. We may also be required to adopt new or amend existing return and exchange policies from time to time. For example, pursuant to the amended PRC Consumer Protection Law, which became effective in March 2014, consumers are generally entitled to return products purchased from business operators over the internet within seven days upon receipt of the products. See “Item 4. Information on the Company—B. Business Overview—Regulation—Regulations on Consumer Protection.” Any significant claims against us could result in the use of funds and managerial efforts in defending them and could negatively impact on our reputation. If we are unable to maintain our reputation, enhance our brand recognition or increase positive awareness of our platform, products and services, it may be difficult to maintain and grow our user base.
In addition, adverse publicity about the industry in which we operate and the KOLs, merchants and other partners that we cooperate with could damage our reputation and brand image, undermine our users’ confidence in us and reduce the long-term demand for our content and products, even if such publicity is unfounded. As a result, we may fail to maintain and grow our user base and may experience significant declines in our revenue and user traffic from which we may not be able to recover and our business would be materially and adversely affected.
If we fail to manage and expand the relationships with merchants and brand partners on our platform, in particular the major merchants that contribute a significant portion of our GMV, or otherwise fail to cooperate with them at favorable terms, our business and growth prospects may suffer.
Our business depends on our ability to attract quality merchants and brand partners. Maintaining strong relationships with these merchants and brand partners is important to the growth of our business. We cannot assure you that our current merchants and brand partners will continue to cooperate with us on commercially attractive terms to us, or at all, after the term of the current agreements expire. If we lose any of these important merchants or brand partners, or if GMV generated from a significant merchant is substantially reduced due to, for example, increased competition, ineffectiveness of our advertisement solutions, a significant change in the business policy or operation of the relevant merchants or brand partners, any deterioration in our relationship with such merchants or brand partners, or significant delays in payments for our services, our business, financial condition and results of operations may be materially and adversely affected. Even if we maintain good relationships with our merchants and brand partners, they may be unable to remain in business due to economic conditions, labor actions, regulatory or legal decisions, natural disasters or other causes, in which event our business and result of operations may be materially and adversely affected.
Any negative developments in our relationships with merchants and brand partners could materially and adversely affect our business and growth prospects. If we fail to attract merchants and brand partners to offer products for users on our platform due to any reason, our business and growth prospects may be materially and adversely affected.
We generate a portion of our revenues from marketing services. If we fail to attract more marketing services customers to our platform or if marketing services customers are less willing to purchase services from us, our revenues may be adversely affected.
We generate a portion of our revenues from provision of marketing services to marketing services customers, including our merchants and brand partners. Our revenues from marketing services partly depend on the continual development of the online marketing industry in China and marketing services customers’ willingness to allocate budgets to online marketing. In addition, marketing services customers that decide to market and promote online may utilize more established methods or channels, such as more established Chinese internet portals or search engines, over marketing on our platform. If any of our current marketing methods or promotion activities becomes less effective or efficient or if our marketing services are not as satisfactory as our marketing services customers expect, we may lose our existing or fail to attract new marketing services customers. As a result, our ability to increase our marketing service revenues and our margins and prospects may be materially and adversely affected. We recently embarked on a number of new business initiatives, including focusing our platform on the provision of fashion content in rich media formats and our emphasis on live video broadcasts and other engaging socially oriented sales methods. Since these business initiatives have been implemented for a limited period of time and are not yet at scale, it is difficult for us to evaluate the effect, if any, they will bring to our financial prospects. As a result, we cannot reasonably predict the future trends of our marketing service revenues, our commission revenues or our total revenues.
 
19

If we are unable to maintain low delinquency rates for the financing solutions offered on our platform, our business and results of operations may be materially and adversely affected. Further, historical delinquency rates may not be indicative of future results.
We offer
Bai Fu Mei
, a financing solution with flexible repayment terms, to users on our platform, through which users can easily obtain small credits for their purchases of products on our platform after going through our streamlined application process. Loans that we make to consumers through
Bai Fu Mei
are collateralized by the accounts receivables related to the purchased goods. We also offer advanced payment collection service to merchants by collecting service fees based on the principal, to obtain funds from sale of goods upon shipment, rather than upon delivery to customers, which shortens the cash collection cycle for merchants. In addition, we also provide loans to merchants secured by their accounts receivables from customers, which are provided through the VIEs that have factoring business qualification. We charges a service fee for the loans and the amount of which is based on the principal of the loans. The default rate for our internet financing solutions has historically been low. We may not be able to maintain low delinquency rates for the financing solutions offered on our platform, and such delinquency rates may be significantly affected by economic downturns or credit cycle associated with the volatility of general economy beyond the control of us, our users and merchants. If economic conditions deteriorate, we may face increased risk of default or delinquency of our users and merchants. If we cannot track the deterioration of the creditworthiness of our users and merchants, the criteria we use for the analysis of their credit profiles may be rendered inaccurate. As a result, we may not be able to accurately assess the credit profiles of them. Since financing solutions’ contribution to our total revenues has continued to increase over the past year, if any of the foregoing were to occur, our results of operations, financial position and liquidity would be materially and adversely affected.
Our users use third-party payment service providers to make payments on our platform. If these payment services are restricted or curtailed in any way or become unavailable to us or our users for any reason, our business may be materially and adversely affected.
Our users make payments through a variety of methods, including payment through our third-party online payment service partners, such as Wechat Pay, QQ Wallet, Alipay, LianLian Pay and China UnionPay. We may also be subject to fraud, user data leakage and other illegal activities in connection with the various payment methods we offer. In addition, our business depends on the billing, payment and escrow systems of the third-party payment service providers to maintain accurate records of payments of sales proceeds by users and collect such payments. If the quality, utility, convenience or attractiveness of these payment processing and escrow services declines, or if we have to change the pattern of using these payment services for any reason, the attractiveness of our platform could be materially and adversely affected.
Business involving online payment services is subject to a number of risks that could materially and adversely affect third-party online payment service providers’ ability to provide payment processing and escrow services to us, including:
 
   
dissatisfaction with these online payment services or decreased use of their services by users and merchants;
 
   
increasing competition, including from other established Chinese internet companies, payment service providers and companies engaged in other financial technology services;
 
   
changes to rules or practices applicable to payment systems that link to third-party online payment service providers;
 
   
breach of users’ personal information and concerns over the use and security of information collected from buyers;
 
   
service outages, system failures or failures to effectively scale the system to handle large and growing transaction volumes;
 
   
increasing costs to third-party online payment service providers, including fees charged by banks to process transactions through online payment channels, which would also increase our costs of revenues; and
 
   
failure to manage funds accurately or loss of funds, whether due to employee fraud, security breaches, technical errors or otherwise.
Certain commercial banks in China impose limits on the amounts that may be transferred by automated payment from users’ bank accounts to their linked accounts with third-party online payment services. We cannot predict whether these and any additional restrictions that could be put in place would have a material adverse effect on our platform. We may also be subject to various rules, regulations and requirements, regulatory or otherwise, governing electronic fund transfers and online payment, which could change or be reinterpreted to make it difficult or impossible for us to comply with.
In addition, we cannot assure you that we will be successful to enter into and maintain amicable relationships with online payment service providers. Identifying, negotiating and maintaining relationships with these providers require significant time and resources. They could choose to terminate their relationships with us or propose terms that we cannot accept. In addition, these service providers may not perform as expected under our agreements with them, and we may have disagreements or disputes with such payment service providers, any of which could adversely affect our brand and reputation as well as our business operations.
 
20

A strategic partner provides services to us in connection with various aspects of our operations. If such services become limited, restricted, curtailed or less effective or more expensive in any way or become unavailable to us for any reason, our business may be materially and adversely affected.
We collaborate with Tencent, one of our principal shareholders, on various aspects of our business, including Weixin Mini Program, as well as services such as payment processing, marketing and cloud technology. If services provided by Tencent to us become limited, compromised, restricted, curtailed or less effective or become more expensive or unavailable to us unexpectedly, or does not technologically compatible with the features of the platforms we operate for any reason, our business may be materially and adversely affected. Failure to maintain our relationship with Tencent could materially and adversely affect our business and results of operations. In addition, we may experience a decline in user traffic if Tencent’s platform becomes less popular, which may have a material and adverse impact on our results of operations and financial conditions.
If we are unable to conduct our brand promotion and marketing activities cost-effectively, our business, prospects, results of operations and financial condition may be materially and adversely affected.
We have incurred expenses on a variety of different marketing and brand promotion efforts designed to enhance our brand recognition and increase sales from our platform. Our marketing and promotional activities may not be well received by users and may not result in the levels of product sales that we anticipate. We incurred RMB613.2 million, RMB229.8 million and RMB148.4 million (US$23.4 million) in sales and marketing expenses in fiscal years ended March 31, 2020, 2021 and 2022, respectively. Marketing approaches and tools in the consumer products market in China are evolving. This further requires us to enhance our marketing approaches and experiment with new marketing methods to keep pace with industry developments and user preferences, which may not be as cost-effective as our marketing activities in the past and may lead to significantly higher marketing expenses in the future. Failure to refine our existing marketing approaches or to introduce new effective marketing approaches in a cost-effective manner could reduce our market share, cause our net revenues to decline and negatively impact our margin.
Our business, financial condition and results of operations has and is expected to continue to adversely affected by the
COVID-19
pandemic.
The ongoing
COVID-19
pandemic has continued to spread across the world and has created unique global and industry-wide challenges.
COVID-19
has resulted in quarantines, travel restrictions, and the temporary closure of facilities in China and many other countries. New
COVID-19
variants have also emerged in a few countries, potentially extending the period where
COVID-19
will negatively impact the global economy.
Substantially all of our revenues and our workforce are concentrated in China. Consequently, our results of operations and financial performance has and is expected to continue adversely affected, to the extent that
COVID-19
exerts long-term negative impact on the Chinese economy. The
COVID-19
pandemic and its effect on the global economy have continued to impact our customers and us for the year ended March 31, 2022. Despite the successful
roll-out
of vaccines around the world, a varying degree of uncertainty remained throughout 2021. This was caused by new variants of
COVID-19,
varying vaccine effectiveness rates and the need for the reimposition of government-imposed restrictions. During the first quarter of 2022, due to the outbreak of
COVID-19
in China and the implementation of relevant
COVID-19
mandates, businesses have experienced an overall disruption of logistics and supply chain across industries. As a result, the delivery of certain merchandise sold on our platform was delayed. See “Item 5. Operating and Financial Review and Prospects – A. Operating Results.”
While the disruption of
COVID-19
to business activities in China has been minimized, it is still difficult to predict the impact of
COVID-19
on our business. For example, if a
COVID-19
variant strikes and causes a future wave of infections, there may be delay in the delivery of merchandise sold on our platform due to disruptions in logistics as the
COVID-19
mandates such as quarantine requirements or reduced work hours are implemented. In addition, the prolonged social distancing and quarantine measures that are likely to be enforced in any future wave of
COVID-19
or its variants may decrease people’s need and willingness to shop for fashion merchandise, which may lead to reduced traffic and transaction volume on our platform. All of these factors may lead to a negative impact on our financial performance generally. The extent to which the
COVID-19
pandemic impacts our business operations and financial results remain uncertain as it depends on factors such as the availability and effectiveness of any new vaccines and the emergence of any new
COVID-19
variants.
We face risks related to natural disasters, health epidemics and other outbreaks, which could significantly disrupt our operations.
In addition to the impact of
COVID-19,
our business could be adversely affected by the effects of other health epidemics or other public safety concerns. In recent years, there have been outbreaks of epidemics in China and globally. Our business operations could be disrupted if one of our employees is suspected of having
COVID-19,
H1N1 flu, H7N9 flu, Severe Acute Respiratory Syndrome or SARS, Zika virus, Ebola virus, avian flu or other infectious disease, and our employees may need to be quarantined and our offices may need to be regularly disinfected. Our results of operations could also be adversely affected by the outbreaks of the diseases because they might negatively impact Chinese economy and the development of
e-commerce
industry in China.
 
21

We are also vulnerable to natural disasters and other calamities. Fire, floods, typhoons, earthquakes, power loss, telecommunications failures,
break-ins,
war, riots, terrorist attacks or similar events may give rise to server interruptions, breakdowns, system failures or internet failures, which could cause the loss or corruption of data or malfunctions of software or hardware as well as adversely affect our ability to provide our services.
Any change, disruption, discontinuity in the features and functions of major social networks in China could severely limit our ability to continue growing our user base, and our business may be materially and adversely affected.
Our success depends on our ability to attract new users and retain existing users. We leverage our users’ social network to acquire and engage new users for our platform and the platforms of businesses that we provide branding services. For example, we leverage Weixin and QQ to enable users to share product information with their friends, family and other social contacts. A portion of our traffic comes from such user recommendation or product sharing features. As compared to the traffic generated through social networks such as Weixin, it is impracticable for us to accurately bifurcate and quantify other user traffic that are generated organically. Buyers’ behaviors vary in different circumstances, which can make it difficult to identify the actual source of traffic and a buyer’s path to making a purchase on our platform. The source of the traffic may involve
in-app
activities, as well as the tools and services on social networks and associated access points.
To the extent that we fail to leverage users’ social networks, our ability to attract or retain users may be severely harmed. If any of these social media platform changes its functions or became technically incompatible with us, or stops offering its functions or technical support to us, we may not be able to locate alternative platforms of similar scale that can provide similar functions or support on commercially reasonable terms in a timely manner, or at all. Any interruption to or discontinuation of our relationships with major social network operators may severely and negatively impact our ability to grow our user base, and any occurrence of the circumstances mentioned above may have a material adverse effect on our business, financial condition and results of operations. Furthermore, we may fail to establish or maintain relationships with additional social network operators to achieve growth of our business on economically viable terms, or at all.
Increases in labor costs and restrictions in the supply of labor in China and our inability to retain or attract talents may materially and adversely affect our business, financial condition and results of operations.
Merchants that sold products via our platforms are based in China and relied on the supply of labor in China. With the rapid development of the Chinese economy and the development of labor laws and regulations, the cost of labor has risen and may continue to rise. Rising labor costs in China will increase costs of merchants who use our platform to sell products and may cause the third-party logistics and delivery service providers engaged by our merchants to charge higher fees for their products and services, which will restrict our merchants’ ability to offer attractive pricing for or maintain the quality of products offered on our platform, which in turn may cause us to lose users and negatively impact our margin. Our results of operations will be materially and adversely affected if the labor costs of our merchant increase. In addition, even if labor costs do not increase, our merchants may not be able to find a sufficient number of workers to produce the products that they offer.
Also, our corporate operations also rely on talents who are based in China. and if we are not able to provide satisfactory wages and benefits to talents who support the operations of our platforms, we may not be able to retain or recruit new talents to maintain our competitiveness in the market.
 
22

If we fail to obtain and maintain the licenses, permits and approvals required or applicable to our business under the complex regulatory environment for our businesses in China, our business, financial condition and results of operations may be materially and adversely affected.
As the
e-commerce
industry in China is still at a relatively early stage of development, new laws and regulations may be adopted from time to time to address new issues that come to the authorities’ attention. Considerable uncertainties still exist with respect to the interpretation and implementation of existing and future laws and regulations governing our business activities. For example, in August 2018, the Standing Committee of the National People’s Congress promulgated the
E-Commerce
Law, which became effective on January 1, 2019. The
E-Commerce
Law provides that
e-commerce
operators must obtain administrative licenses if the business activities conducted by the
e-commerce
operators are subject to administrative licensing requirements under applicable laws and regulations. See “Item 4. Information on the Company—B. Business Overview—Regulation—Regulations on
E-commerce”
for further details. On March 15, 2021, the SAMR promulgated a revised vision of the Online Trading Measures, which became effective on May 1, 2021. The revision makes further provisions with regard to emerging models of online trading (such as online social networking and online live streaming), consumer rights protection, personal information protection, etc. However, it remains uncertain as to how the
E-Commerce
Law will be further interpreted and implemented. We cannot assure you that we will not be found in violation of any future laws and regulations or any of the laws and regulations currently in effect due to changes in or discrepancies with respect to the relevant authorities’ interpretation of these laws and regulations. We changed the website from
mogujie.com
to
mogu.com
. We have updated the related licenses and approvals pursuant to the relevant laws and regulations and may be required to obtain additional license or approvals, and we cannot assure you that we will be able to timely obtain or maintain all the required licenses or approvals or make all the necessary filings in the future. Advised by King & Wood Mallesons, our PRC legal counsel, we do not believe that our provision of sales promotion activities through live video broadcasts will be viewed as provision of internet audio-visual programs to the public which would require a license for providing internet audio-visual program services. We cannot assure you that the relevant PRC government authorities would agree with our conclusions. Also, we believe the provision of sales promotion activities through live video broadcasts has been a relatively minor portion of our business and is likely to be further reduced. However, if we fail to obtain or maintain any of the required licenses or approvals or make the necessary filings or fail to obtain required licenses or approvals in a timely manner, we may be subject to various penalties, such as confiscation of the net revenues that were generated through the unlicensed internet activities, the imposition of fines and the termination or restriction of our operations. Any such penalties may disrupt our business operations or materially and adversely affect our business, financial condition and results of operations.
Moreover, heightened regulatory scrutiny may lead to frequent regulatory communications, inquiries or investigations that could materially and adversely affect our business model, results of operations and prospects. For instance, since April 2021, the SAMR has required online platform operators including us to conduct self-inspections on compliance on regular basis. As of the date of this annual report, we have not been subject to any material fines or other penalties due to any material violations of applicable PRC laws or regulations. However, if the PRC government continues to tighten its regulatory framework for internet service industries in the future or requires us to adjust our existing business practices for regulatory compliance, our business, financial condition and prospects could be materially and adversely affected.
The proper functioning of our internet platform is essential to our business. Any disruption to our IT systems could materially affect our ability to maintain the satisfactory performance of our platform and deliver consistent services to our users and merchants.
The proper functioning of our internet platform is essential to our business. The satisfactory performance, reliability and availability of our IT systems are critical to our success, our ability to attract and retain users and our ability to maintain and deliver consistent services to our users and merchants. However, our technology infrastructure may fail to keep pace with increased sales on our platform, in particular with respect to our new product and service offerings, and therefore our users may experience delays as we seek to source additional capacity, which would adversely affect our results of operations as well as our reputation.
Additionally, we must continue to upgrade and improve our technology infrastructure to support our business operation. However, we cannot assure you that we will be successful in executing these system upgrades, and the failure to do so may impede our business operation. We currently use cloud services and servers operated by Tencent Cloud to store our data, to allow us to analyze a large amount of data simultaneously and to update our user database and user profiles quickly. Any interruption or delay in the functionality of Tencent Cloud may materially and adversely affect the operations of our business.
We may be unable to monitor and ensure high-quality maintenance and upgrade of our IT systems and infrastructure on a real-time basis, and users may experience service outages and delays in accessing and using our platform to place orders. In addition, we may experience surges in online traffic and orders associated with promotional activities and generally as we scale, which can put additional demand on our platform at specific times. Our technology or infrastructure may not function properly all the time. Any system interruptions caused by telecommunications failures, computer viruses, hacking or other attempts to harm our systems that result in the unavailability or slowdown of our platform or reduced order fulfillment performance could reduce the volume of products sold and the attractiveness of product offerings on our platform. Our servers may also be vulnerable to computer viruses, physical or electronic
break-ins
and similar disruptions, which could lead to system interruptions, website or mobile app slowdown or unavailability, delays or errors in transaction processing, loss of data or the inability to accept and fulfill buyer orders. Any of such occurrences could cause severe disruption to our daily operations. As a result, our reputation may be materially and adversely affected, our market share could decline and we could be subject to liability claims.
 
23

Our business generates and processes a large amount of data, and we are required to comply with PRC and international laws relating to data privacy and cyber security. The improper use or disclosure of data could have a material and adverse effect on our business and prospects.
Our business generates and processes a large quantity of data. We face risks inherent in handling and protecting large volume of data. In particular, we face a number of challenges relating to data from transactions and other activities on our platform, including:
 
   
protecting the data in and hosted on our system, including against attacks on our system by outside parties or fraudulent behavior or improper use by our employees or users;
 
   
addressing concerns related to privacy and sharing, safety, security and other factors; and
 
   
complying with applicable laws, rules and regulations relating to the collection, use, storage, transfer, disclosure and security of personal information, including any requests from regulatory and government authorities relating to these data.
The PRC regulatory and enforcement regime with regard to data security and data protection is evolving. We may be required by Chinese governmental authorities to share personal information and data that we collect to comply with PRC laws relating to cybersecurity. All these laws and regulations may result in additional expenses to us and subject us to negative publicity which could harm our reputation and negatively affect the trading price of the ADSs. There are also uncertainties with respect to how these laws will be implemented in practice. PRC regulators have been increasingly focused on regulation in the areas of data security and data protection. For example, in October 2020, the Standing Committee of the National People’s Congress of China released a draft personal information protection law, or the Draft PI Protection Law, for public comment. The Draft PI Protection Law provides for various requirements on personal information protection, including legal bases for data collection and processing, requirements on data localization and cross-border data transfer, requirements for consent and requirements on processing of sensitive personal information. As the Draft PI Protection Law remains subject to change, we may be required to make further adjustments to our business practices to comply with the enacted form of the law. See “Item 4. Information on the Company—B. Business Overview—Regulation—Regulations on Cybersecurity and Privacy.”
Moreover, different regulatory bodies in China, including the Ministry of Industry and Information Technology, or the MIIT, the Cyberspace Administration of China, or CAC, the Ministry of Public Security and the SAMR, have enforced data privacy and protections laws and regulations with various standards and applications. These various standards in enforcing data privacy and protection laws may create difficulties in ensuring full compliance and increase our operating cost, as we need to spend time and resources to deal with various inspections for compliance. We expect that these areas will receive greater attention and focus from regulators, as well as attract continued or greater public scrutiny and attention going forward, which could increase our compliance costs and subject us to heightened risks and challenges associated with data security and protection. Although we collect personal information and data only with users’ prior consent and have adopted measures to protect the data security and minimize the risk of data loss, we cannot assure you that the measures we have taken are always sufficient and effective. In the past, we received notices from regulator authorities that identified certain compliance defects in our data privacy and protections practices, requiring us to rectify our data privacy measures but without imposing any penalty on us. We have adopted several remedial measures in response to such notices and submitted our rectification reports to the relevant governmental authorities, but we cannot guarantee that such remedial measures will not invite any further scrutiny from the relevant regulatory authorities. If we are unable to manage these risks, we could have our mobile apps be blocked or suspended and/or become subject to penalties, fines, suspension of business and revocation of required licenses, and our reputation and results of operations could be materially and adversely affected.
Cybersecurity and Data Security
PRC authorities have promulgated a number of laws and regulations relating to cybersecurity and data security in the past year. In June 2021, the Standing Committee of the NPC promulgated the Data Security Law, which took effect on September 1, 2021. In July 2021, the state council promulgated the Regulations on the Protection of Critical Information Infrastructure, which became effective on September 1, 2021. In December 2021, the CAC, together with other authorities, jointly promulgated the Cybersecurity Review Measures, which became effective on February 15, 2022. These laws and regulations impose cybersecurity review obligations on critical information infrastructure operators and network platform operators. Under the Regulations on the Protection of Critical Information Infrastructure, “critical information infrastructure” is defined as those network facilities or information systems that may endanger national security, people’s livelihoods and the public interest if such facilities or systems were to experience data breaches, damage, or system malfunctions. In particular, the network facilities or information systems used in certain critical industries or sectors (such as telecommunications, energy, transportation, finance, public services and national defense) are considered critical information infrastructure. Critical information infrastructure operators, as determined and notified by the applicable governing authorities, are required to undergo cybersecurity reviews if they procure network products and services which could affect the security of their information infrastructure, network or data. As of the date of this annual report, we have not received any notice that we are a critical information infrastructure operator by any government authority. Under the Cybersecurity Review Measures, any network platform operator that holds personal data of more than one million users must apply for a cybersecurity review before it makes any public offering on a foreign stock exchange. As these laws and regulations are relatively new, certain concepts thereunder, including the exact scope of the term “critical information infrastructure operators” and “network platform operators,” remain subject to further clarification. Therefore, it is uncertain whether we would be deemed to be a critical information infrastructure operator or a network platform operator under PRC law and become subject to the relevant PRC cybersecurity laws and regulations.
 
24

In addition to the currently effective laws and regulations described above, PRC authorities may adopt additional laws and regulations in the future that further heighten the regulation of data security. For example, in November 2021, the CAC released a consultation draft of the Regulations on Network Data Security Management, or the Draft Network Data Security Regulations, for public comment. These regulations create cybersecurity review obligations for data processors, which are broadly defined as individuals or organizations that have discretion in deciding the objectives and means of their data processing activities, such as data collection, storage, utilization, transmission, publication and deletion. In particular, pursuant to the Draft Network Data Security Regulations, a data processor must apply for cybersecurity review if, among others, it (i) seeks a public offering on a foreign stock exchange and processes the data of more than one million users, (ii) it seeks a Hong Kong listing that affects or may affect national security, or (iii) otherwise conducts data processing activities that affect or may affect national security. However, as of the date of this annual report, there have been no clarifications from the relevant authorities as to the standards for determining whether an activity is one that “affects or may affect national security.” In addition to the foregoing cybersecurity review obligations, the Draft Network Data Security Regulations also proposed to create a system of annual data security self-assessments, whereby data processors that (i) process “important data” or (ii) are listed overseas must conduct an annual data security assessment, and submit the annual assessment report to the applicable municipal cybersecurity department by the end of January in the following year. As of the date of this annual report, the Draft Network Data Security Regulations have only been released for public comment, and their respective provisions and anticipated adoption or effective date remain subject to change with substantial uncertainty. However, if such regulations were to be adopted in their current form, we would be subject to additional regulatory obligations with respect to data security, and may face challenges in addressing their requirements and amending our internal data processing policies and practices to ensure compliance therewith.
Personal Data and Privacy
The Anti-monopoly Guidelines for the Platform Economy Sector published by the Anti-monopoly Committee of the State Council, effective February 7, 2021, prohibit collection of user information through coercive means by online platforms operators.
In August 2021, the Standing Committee of the NPC promulgated the Personal Information Protection Law, which unified a number of hitherto separate rules with respect to personal information rights and privacy protection, and took effect on November 1, 2021. The Personal Information Protection Law strengthened the protection of personal information. As a general principle, the processing of personal data must be directly related to a specific and reasonable purpose and the related collection of personal information must be tailored to what is necessary to meet that purpose. The Personal Information Protection Law also created a number of specific requirements for the processing of personal data. For example, the law prohibits any person that processes personal data from engaging in price discrimination or otherwise applying unreasonable differential treatment to individuals based on automated analysis of collected personal information. To meet the latest regulatory requirements of the PRC authorities, we update our privacy policies from time to time and adopt technical measures to protect data and ensure that we systematically protect personal information rights. However, many of the specific requirements of the Personal Information Protection Law remain to be clarified by the CAC, other regulatory authorities, and courts in practice. We may be required to make further adjustments to our business practices to comply with personal information protection laws and regulations.
In addition, we may need to comply with increasingly complex and rigorous regulatory standards enacted to protect business and personal data in the U.S., Europe and elsewhere. For example, the European Union adopted the General Data Protection Regulation, or the GDPR, which became effective on May 25, 2018. The GDPR imposes additional obligations on companies regarding the handling of personal data and provides certain individual privacy rights to persons whose data is stored. Compliance with existing, proposed and recently enacted laws (inc