Behind litchis IPO in the United States: investors seeking to withdraw from capital recession

 Behind litchis IPO in the United States: investors seeking to withdraw from capital recession

On October 28, litchi officially submitted an IPO application to the securities and Exchange Commission of the United States. It is expected to complete the listing with Lizi as the stock code, raising up to $100 million. This means that litchi is expected to become the first stock in Chinas audio industry.

The so-called audio entertainment business mainly refers to the live audio and other content that users see in Litchi app. In terms of actual revenue figures, the podcast, advertising and other revenue represented by the home page is gradually decreasing. In the second quarter of 2018, the revenue of this business was still 5.016 million yuan, and by the second quarter of 2019, it was only 2.81 million yuan, a sharp decrease of about 44% year on year.

Not only that, litchis financial performance in the past three years is not very good. According to the financial data disclosed in the prospectus, litchi has not been profitable so far. In 2017, 2018 and the first half of 2019, the companys operating revenue was RMB 454 million, RMB 799 million and RMB 487 million respectively, and its net profit was RMB - 154 million, RMB - 9.342 million and RMB - 56 million respectively, which has been in a state of loss for the past two years.

For the reason of the loss, litchi said it was mainly due to the increase of host subsidy expenditure, as well as the investment in AI research and development and cultivation of global market.

In terms of active users, as of the third quarter of 2019, litchi has more than 46.6 million monthly active users, more than 5.7 million monthly active content creators, more than 12% of the total monthly active users, and the average daily use time of mobile users is about 53 minutes. However, as of September 30 this year, only 5.96 million monthly users of litchis audio entertainment sector in the mobile end, accounting for about 13% of 46.69 million monthly users. Among these users, less than 382000 are paid users, accounting for only 6.4% of the active users.

Although litchis financial indicators are not particularly good, it has been stepping up the process of listing. Judging from the current listing progress of litchi and Himalaya, if the IPO is successful, litchi is expected to have more online audio first share titles.

Looking back at Himalaya, another giant in the online audio industry, since 2018, it has been repeatedly reported that it will be listed in the United States to seize the first share of the industry, and it has been repeatedly reported by many media that it has chosen Goldman Sachs, JPMorgan Chase and Morgan Stanley to arrange an IPO of 500 million US dollars to 1 billion US dollars. But the rumors have been denied by the Himalayas.

Despite the denial of the rumors, in May this year, there were a number of industrial and commercial changes in Himalaya, with shareholders and directors all withdrawing, leaving only Yu Jianjun, co-founder and co CEO of Himalaya. Himalayas response at that time was that because the company built vie structure, all directors of domestic vie companies were changed to shareholders of overseas parent companies, which belonged to vie standard structure. But this kind of action is often seen as a routine practice for domestic companies to go overseas.

In addition, Himalayan officials have been releasing the companys good news to the outside world, which is also to build momentum for listing. On October 18 this year, Yin Qiming, vice president of the company, revealed in the Himalayan ten thousand people and one billion new voices plan that from January to September 2019 alone, they made 1.15 billion yuan. In addition, Himalayas has invested more than 500 million yuan in audio ecology, including Fandeng reading club, Yetan finance and other head content institutions, focusing on its core business.

Ge Jia, an Internet analyst, told time finance and Economics on October 29: Himalayas has been repeatedly listed. Although they have denied it, they dont necessarily have a schedule. It may be because of the financial data, in order to make the revenue and other indicators better looking, the listing schedule has been eased. The adjustment of vie structure is a good illustration. There is a phenomenon that companies in the segment compete for the concept of the first share in the industry, which is one of the reasons why many companies are listed quickly.

In fact, the days of online audio platforms in the past two years have not been peaceful. Due to the problems of involving yellow and playing edge ball, Himalayas, Netease cloud music, lychee, etc. have stepped on the regulatory red line frequently.

A few months ago, in a list of online audio image rectification actions, the Office released the information that four applications, including Netease cloud music, litchi, Himalayas and Penguin FM, had harmful information, and the relevant applications were ordered to go offline for 30 days (June 29, 2019 to July 28, 2019).

Litchi, which has been established for six years, has obtained four rounds of financing of nearly 70 million US dollars, and also obtained support from many well-known venture capital institutions, including Xiaomi series, Jingwei China and EMC, which focus on the field of Internet new media investment institutions.

But the exit path of investors has always been a problem that most Internet start-ups have to face, and litchi cant avoid. In recent years, lakala, Jinshan software, Huya, qinbaobao, etc. invested by Xiaomi have been listed in succession in the coming winter, and the listing operation of litchi does not exclude the promotion of investors behind.

The environment is cold, the capital is ebbing, investors are waiting, and the head of online audio is worried about cash flow. Since the dragonfly FM of mobile radio industry completed the e-round financing of 1 billion yuan in early 2018, and litchi completed the d-round financing of 50 million US dollars, and so on, until now, the online audio industry has never heard of financing again. And from the financial data of litchi, it is still in a state of loss, facing financial pressure.

Analysts from fast track research institute once analyzed that: large amount of financing like Dragonfly FM is mainly to solve the problem of liquidity bottleneck, which is also the current situation of the whole mobile radio industry. Relying on advertising revenue has been unable to meet the profit demand, knowledge payment has become the road that the platform must take, and more paid content will also be put on the shelves. In addition, each platform is also inevitable to seize IP, cooperate with big V and other competitive measures, but behind this is still a burn money campaign.

In response, Ge Jia said in an interview with time finance on October 29, investors want to make money and get the best return in the shortest return cycle by investing in any company. However, seeing that the industry environment is not good, we must step up listing financing. Whats more, the audio platform earns hard money. In the revenue structure, the cost of knowledge payment is too high for users, and the number of people who pay is still too small, mainly relying on advertising. In fact, the advertising budget of the enterprise is also relatively sharply reduced, and there are many uncertainties in the future without listing.

These may be the more rich connotation behind lychees first share in Chinas audio industry.

Source: time finance Author: Zhu Yujun editor in charge: Wang Xiaowu Gu NF