Author 丨 Cheng Xiaoyi
Edit | Kang Xiao
Produced | Shenzhen Network Tencent News Xiaoman Studio
The rise and fall of Station B since its listing has been deeply affected by changes in the external environment - its US stock price trend is almost consistent with the NASDAQ China Golden Dragon Index, which tracks the trend of Chinese stocks; it is also related to its own development and changes - the scale of users has grown steadily, but from the first quarter of 2021, the revenue growth rate of Station B has slowed down and the net loss has expanded year-on-year.
The risks and issues corresponding to this are also very clear. Externally, Station B needs to do its best to enhance its ability to resist the risk of changes in the external environment; internally, improve its ability to make money and realize self-hematopoiesis as soon as possible.
On 16 March, according to hkex documents, the board of directors of Bilibili (Station B) approved a motion to voluntarily switch to a dual primary listing on the Main Board of the Hong Kong Stock Exchange. The Board of Directors of Station B has authorized the senior management to carry out the relevant preparatory work and proceed with the necessary procedures to complete the transition from secondary listing to dual listing. After the conversion, The B Station Z common stock (Hong Kong stock) and the American Depositary Stock (US stock) will continue to be traded on the two stock exchanges (as the case may be) and can still continue to be converted to each other.
Station B was listed on nasdaq (BILI) on the NASDAQ in the United States in March 2018 and listed for the second time in Hong Kong in March 2021. Coincidentally, the two listings were both below the issue price on the first day of listing. Chen Rui, chairman and CEO of Bilibili, said the same sentence on the day of the listing of US stocks and Hong Kong stocks: "No one will remember the break in the stock price of Station B in the next ten years." He believes that station B will prove its value in the future.
As of yesterday's U.S. stock market close, Station B's stock price was $30, with a market value of 11.5 billion, down 80% from last year's highest point.
Why is Station B eager to change the way it is listed in Hong Kong? The main reason for the shrinkage of the market value of Station B is the change in the external environment or the fundamentals are deteriorating, and can it return to the peak? In the past one or two years, Station B has used video platform models such as iQiyi to increase user and revenue growth, but it has also paid the price of expanding losses. From a financial point of view, returning game revenue to the mainstream may be the possibility of Station B rebuilding a benign business model.
The best solution to avoid the risk of US stock delisting
In the past two weeks, the stock markets in China and the United States have experienced huge shocks, and the Hang Seng Technology Index of Hong Kong stocks has recorded the largest one-day decline in history and the largest one-day increase in history in three days, respectively, and the market panic has almost reached its peak.
After Station B announced the voluntary conversion of Hong Kong stock listing method to dual listing, Kingsoft Cloud also announced that it will go to Hong Kong for dual listing to provide greater liquidity and protection for shareholders in the changing market and regulatory environment.
In the past year, the stock price of B station Hong Kong and US stocks
Before analyzing why Station B wants to change the way Hong Kong stocks are listed, let's review the whole process of the Chinese stock shock.
· Since the Us Securities and Exchange Commission (SEC) included BeiGene, Yum China, Zaiding Pharmaceutical, Shengmei Semiconductor and Hehuang Pharmaceutical in the provisional identification list on March 10 in accordance with the relevant provisions of the Foreign Company Accountability Law, the Nasdaq Golden Dragon China Index, which tracks the trend of Chinese stocks, has recorded the largest one-day decline since the 2008 global financial crisis.
· The capital market believes that the risk of Chinese stocks being forced to delist from the US stock market has increased, pessimism has intensified, coupled with the short-selling and suppression of some capital, Chinese stocks have fallen for three consecutive trading days. As of the close of U.S. stocks on March 14, nearly half of the Chinese stock prices had shrunk by more than 90% compared with the highest point, and the Hang Seng Technology Index recorded the largest one-day decline in history on the same day.
· On March 15, the US regulator released a positive signal, and Chinese stocks began to rise, with Wuxin Technology rising more than 40%, Kingsoft Cloud rising more than 20%, and Station B rising more than 10%. According to Bloomberg, the U.S. Public Corporation Accounting Oversight Board (PCAOB) said it was in active communication with Chinese regulators and was willing to maintain a partnership to end the years-long cross-border audit regulatory dilemma.
· On March 16, six ministries and commissions issued a large number of blockbuster messages to dispel market doubts and boost confidence. A-shares, Hong Kong stocks, And Chinese stocks rose collectively, with more than 4,300 individual stocks in A-shares floating red, 137 rising and stopping, and the ChiNext index rose more than 5%. The Hong Kong-based Hang Seng Technology Index rose 22.2 percent, the largest one-day gain in history. Chinese stocks soared collectively, with 21Vianet and Zhihu rising more than 80%, and Kingsoft Cloud rising more than 72%.
Starting with the financial fraud incident of Luckin Coffee in 2020, the US Senate passed the "Foreign Company Liability Act", the risk of "forced" delisting of Chinese stocks began to appear, and a number of Chinese-listed companies began to choose to go to Hong Kong for secondary listing or double listing under cross-border regulatory pressure.
Although the total market value of Chinese stocks rebounded by more than 120% after the government's voice on March 16, and the short-term pessimism in the market has dissipated, for Chinese stock companies, the boots to relieve external environmental risks have not yet landed, and they still need to take precautions to prepare for risks. From the perspective of anti-risk ability, the way of dual listing back to Hong Kong is better than that of secondary listing.
Although both methods allow overseas investors to convert their Holdings of Chinese-listed ADS (i.e. US stocks) into ordinary shares of Hong Kong stocks (i.e. Hong Kong stocks) and trade them in the Hong Kong stock market, if the subsequent voluntary/passive delisting of US stocks, enterprises will face the situation of overseas investors who are not suitable for Hong Kong stocks or cannot conduct Hong Kong stock trading (retail trading platforms such as Robinhood do not support the trading of overseas exchange stocks).
CICC believes that new investors, such as southbound funds (referring to the funds of mainland investors to buy shares on the Hong Kong Stock Exchange through Shanghai and Shenzhen-Hong Kong Stock Connect), can alleviate the pressure on overseas investors to reduce their holdings. Judging from the current listing rules, secondary listed Chinese stocks cannot enter the Shanghai and Shenzhen-Hong Kong Stock Connect, unless the first listing place is converted to Hong Kong (from the DElisting of US stocks or the proportion of hong Kong stock market trading volume exceeds that of US stocks), dual listing is not subject to this restriction.
Therefore, "the dual major listing in Hong Kong may be the best solution to avoid the risk of delisting in the US market in the short term." ”
In addition, dual listed companies can enter the mainland market through Shanghai and Shenzhen-Hong Kong Stock Connect, and their equity structure is closer to the regulatory requirements of A-shares, coupled with the complexity of the previous dual listing procedures for Chinese stocks returning to Hong Kong, the dual listing of Chinese stocks returning to Hong Kong is often regarded as a signal that they will return to A-shares for three listings. BeiGene completed the dual listing of Hong Kong stocks and the listing of A-shares on the Science and Technology Innovation Board within one year, becoming the first innovative pharmaceutical company to be listed in three places.
In addition, CICC said that the repurchase of the second-listed Chinese stock company during this period can also alleviate some of the pressure. Station B said in its fourth quarter 2021 earnings report that it will repurchase up to $500 million of depositary shares (ADS) in the next 24 months, and Chen Rui also intends to use personal funds to purchase ADS with a total amount of no more than $10 million in the open market in the next 24 months.
New RULES of the Hong Kong Stock Exchange "Bottom" for Chinese Stocks
Since the dual listing method is better than the secondary listing, why do most Chinese stocks still use the secondary listing method when they return to Hong Kong? This is related to the two listing system changes on the Hong Kong Stock Exchange since 2018.
Before 2018, the listing system of A-shares and Hong Kong stocks was relatively strict, and unprofitable Chinese new economy companies with special frameworks such as same-share different rights (such as Ali) could only be listed overseas. And because companies with a greater China focus are explicitly prohibited from secondary listing in Hong Kong, there have been no cases of Chinese stocks returning to Hong Kong for secondary listing.
At the same time, Li Xiaojia, then chief executive of the Hong Kong Stock Exchange, realized that the rules of the Hong Kong Stock Exchange at that time were in a sense a door to the new economy , which the vast majority of new economy companies adopted a WVR structure. "For Hong Kong, losing one or two listed companies may not be a big deal, but losing an entire generation of innovative technology companies is a big deal," he said in an interview with Caijing. ”
Under the persistence and mediation of Li Xiaojia for many years, on 24 April 2018, the Hong Kong Stock Exchange announced a new version of the Listing Rules, allowing unprofitable biotech companies to list in Hong Kong; opening up the restrictions on different rights of the same shares; and accepting enterprises with a focus on the Greater China region to be listed in Hong Kong for a second time. Geli Pharmaceuticals, Xiaomi, and Alibaba have each become the first beneficiaries of the three liberalization rules.
This version of the Listing Rules opens up restrictions on the different rights of the same shares, but does not open the restrictions on the VIE structure (the most commonly used structure for overseas listing of Chinese new economy companies), and if Chinese stocks want to double-list in Hong Kong stocks, they need to adjust or reorganize the equity structure, which may involve issues such as equity transfer pricing, capital costs, tax costs and risks, and license changes, which are very complicated. Therefore, from 2018 to the beginning of 2021, almost all Chinese stocks returning to Hong Kong have chosen to be listed for the second time, including Station B.
But the rules have always been to regulate the market, not to restrict the development of the market. As more and more high-quality Chinese companies seek to return to Hong Kong to hedge against U.S. stock regulatory risks, the HONG Kong Stock Exchange has begun to consider further relaxation of the rules.
In April 2021, hkex published a consultation paper stating that eligible issuers are allowed to conduct a dual primary listing under the retention of existing WVR structures and variable interest entity structures (VIEs). Xiaopeng Automobile became the first beneficiary of the regulation.
Chinese stock return method Source: King & Wood Mallesons
After one year of optimization and simplification of the listing regime for overseas issuers, the latest version of the Listing Rules came into effect on 1 January 2022. The new version of the rules not only facilitates the return of more Chinese-funded enterprises to Hong Kong stocks, but also eliminates some worries for enterprises that have returned to Hong Kong for secondary listing.
Dual listing no longer restricts VIE structure companies, so a secondary listed Chinese-funded enterprise that meets the listing conditions of the Hong Kong Stock Exchange can voluntarily convert to a dual listing without having to go to great lengths to dismantle the special framework.
In addition, HKEx also provides a grace period for secondary listing Chinese enterprises that are unable to meet its Listing Rules in a short period of time but urgently need Hong Kong as the first listing place. If, in the full fiscal year after the listing of Hong Kong stocks, the hong Kong shares with a turnover of 55% or more on the Hong Kong stock exchange will automatically obtain the first listing status, that is, automatically convert to dual listing.
Secondary-listed Chinese enterprises that are delisted from overseas markets or passively delisted will automatically be converted to Hong Kong as the first listing place, with a grace period of 12 months and 3 years respectively to adjust and adapt to the relevant rules of Hong Kong stocks.
This is also the background and reason why Station B voluntarily changed from a secondary listing to a dual listing.
Is the video platform compatible with the community?
After doing a good job of external risk avoidance measures, changes in the external environment generally have a short-term impact on a high-quality enterprise, and how long-term development depends on whether the enterprise is a real high-quality enterprise.
Today's concerns about Station B mainly focus on two points: profitability and community quality.
The revenue growth rate of Station B is not low, and the annual revenue reached 19.38 billion yuan, an increase of 62% year-on-year. However, in a longitudinal comparison, from 2021, the year-on-year growth rate of station B revenue has slowed down, and the proportion of revenue of the game business, which was originally the pillar of revenue, has shrunk to 22.4% in the fourth quarter of 2021, and this data is 79.3% in the first quarter of 2018.
In addition, Station B's operating loss and adjusted net loss attributable to shareholders (Non-GAAP) widened. The loss for the whole year of 2021 was 6.8 billion yuan, of which the operating loss in the fourth quarter was 1.999 billion yuan, an increase of 121.3% year-on-year and 6.5% from the previous quarter. The adjusted net loss attributable to shareholders was 1.65 billion yuan, an increase of 148.1% year-on-year loss of the same caliber and 2.4% of the same caliber loss of the same caliber.
Station B seems to be more and more distant from profitability.
B station senior management obviously understand the investors' concerns, B station CFO Fan Xin in the fourth quarter earnings call to give the target time to achieve breakeven, before 2024 to achieve non-GAAP calculation of profit and loss offset, Non-GAAP loss ratio will be narrowed from this year to year.
Chen Rui also said that more energy and resources will be invested in revenue growth. In the past, between the income growth of user growth, the proportion of energy allocated by Station B was seven or three, that is, the user growth accounted for 70%, and the income growth accounted for 30%, and the proportion this year will be adjusted to five or five.
"Revenue growth is going to be a more important job this year than it used to be.
The slowdown in the year-on-year growth rate of Station B revenue is inseparable from the obstruction of game development.
Chen Rui's explanation is that in the past quarter, the growth rate of B-station games is mainly due to the slowdown on the supply side, "because our game agency's revenue increases, it needs to come from the intervention of new games, and in the past six months, there are too few games in the entire market that have obtained version numbers, resulting in our supply being lower than expected." "For the same reason, the schedule of some games in Station B has been postponed, so the growth rate of game business has become lower."
Chen Rui believes that the trend of the future game industry is the lack of supply, so game self-development is the first focus of station B. He predicted that in a few years, the income of half of the game business of Station B would come from self-developed games. Now the scale of the B station game self-development team has exceeded 1,000 people, and several self-developed games will be launched next year.
Starting late and shrinking environmental policies, the opportunities and risks of B station to do games are also five or five.
Compared with 2018, the revenue model of Station B now seems to be more in line with the positioning of video social platforms, relying on traffic monetization. The "most profitable" business is live streaming and value-added services (including large membership subscription fees), with revenue of 1.895 billion yuan in the fourth quarter of 2021, accounting for 32.8% of total revenue.
The fastest growing revenue was the advertising business, with revenue of 1.588 billion yuan in the fourth quarter of last year, an increase of 119.8% year-on-year, and a year-on-year increase of 145%.
The triple-digit growth of the advertising business of Station B last year was a good result, and this growth also occurred under the background of the "advertising winter". According to the "2021 China Internet Advertising Data Report", Internet advertising revenue in 2021 increased by 9.32% year-on-year, which is the first time in the past five years that the year-on-year growth rate has fallen below 10%.
The reason for the increase in advertising revenue of Station B is not difficult to understand. According to its Hong Kong stock prospectus, the monthly active number of users under the age of 35 (MAU) of Station B accounts for 86%, which is the group of people that new consumption, 3C digital, automobile brands and other related enterprises hope to accurately reach.
"Deep Net" learned that An Conghui, CEO of Extreme Kr Automobile, had asked the management to "brush more B station" to understand the preferences of young people now, and also took the senior management team to visit and learn from B station. A car company marketing personnel told the "Deep Net" that activities such as the New Year's Party of Station B are his "overtime days", because these activities are good opportunities for the brand side to tap the potential and meet the brand tone of the newcomer up master.
In addition, the pressure to increase revenue from advertising and value-added businesses has not affected the quality of the community from the data point of view.
In 2021, the B station MAU ended with a high growth rate of more than 50% year-on-year, returning to a state of about 35% year-on-year growth per quarter. Station B MAU has grown by about 100 million in more than a year, from 202 million at the end of 2020 to 300 million in January this year. From the current growth rate, Station B hopes that the goal of breaking through 400 million in MAU in 2023 is not difficult to complete.
From the perspective of single-user usage time, average monthly interactions per MAU, single-user revenue and payment rate, all indicators have increased.
· 82 minutes per user in the fourth quarter of 2021, compared to 75 minutes in the fourth quarter of 2020;
· The average monthly single-user interaction volume in the fourth quarter of 2021 was 37.2 times per MAU, compared with 23.3 in the fourth quarter of 2020;
· Single-user revenue (revenue/MAU) of $21 in the fourth quarter of 2021 and $19 in the fourth quarter of 2020;
· The payment rate was 9% in the fourth quarter of 2021, 8.9% in the fourth quarter of 2020 and 6.8% in the fourth quarter of 2019.
The favorable side is that Station B finds the second pole of revenue growth and maintains the growth of total revenue scale and user scale, which reflects the solidity of the community foundation, but on the way to expansion, Station B has not yet proved the sustainability of the business model, and can the high growth brought about by high content investment be exchanged for positive profits?
From this point of view, the B station revenue model to iQiyi and other video platforms is not a good signal, continue to expand the game investment income is the top priority of management.
In the fourth quarter of 2021, the operating cost of Station B increased by 62% year-on-year to 4.683 billion yuan, of which the revenue share accounted for half of the operating cost, reaching 2.4285 billion yuan, an increase of 91% year-on-year. The increase was due to an increase in revenue share paid by Station B to live streamers and content creators, as well as an increase in payments to distribution channels when expanding mobile games and value-added services.
The investment in the self-developed game of Station B is counted as the research and development cost. In 2021, the R&D expenses of Station B increased by 65% year-on-year to 797.6 million yuan, and the increase was mainly due to the increase in the number of R&D personnel and equity incentive expenses. Although B needs to reduce costs and increase efficiency under the breakeven goal this year, the game will continue to invest in research and development this year. Fan Xin said on the fourth quarter of 2021 earnings conference call that from 2023, the proportion of research and development expenses to revenue will decrease year by year.
In 2021, Station B invested in 19 game-related companies, nearly doubling the number compared to 2020. As of press time this year, Station B has invested in 7 game companies, and has announced 4 game investments in the past 8 consecutive days, with a frequency exceeding that of major manufacturers such as ByteDance and NetEase.
Last year, Station B released 12 new games in China, but only two ("Kan Gong Riding Crown Sword" and "Sword Art Online Black Knight: Ace") entered the top 10 of the best-seller list. After this year's B station invested heavily in the game, the performance of the new game next year or will become the key to the success or failure of the B station game business.
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