Himalaya updated its Hong Kong stock prospectus, and its profitability improved significantly

On March 29, the official website of the Hong Kong Stock Exchange showed that the online audio platform Himalaya updated its prospectus. According to China Insight Consulting, Himalaya is already the largest online audio platform in China in terms of total mobile listening time and total online audio revenue in 2021. With nearly 10 years of strategic determination, Himalaya has created a "content-user-technology" base for the audio industry, leading the audio industry into an era of continuous exploration of new continents and potential development.

Himalaya's updated prospectus has several data that are worth paying attention to: first, the average monthly active users of the whole scene in 2021 reached 268 million, nearly doubled from 140 million in 2019; second, the operating income was 5.86 billion yuan and achieved a rapid growth of 43.7% year-on-year; third, the proportion of sales expenses was stable and declining, and the scale effect began to appear; fourth, the net loss rate narrowed sharply, and the profitability improved significantly; fifth, the mobile user payment rate increased to 12.9%. It is higher than the 12.4% payment rate announced by Tencent Music's 2021 financial report, and more than ten times the 0.84% payment rate of Lychee.

These data show that the user scale of Himalaya and the basic disk of paid subscriptions are relatively stable, and the efficiency advantage has emerged under the diversified monetization models such as paid, advertising, live broadcasting and innovative services.

Revenue growth was strong and net loss narrowed significantly

According to the updated prospectus, Himalaya's revenue in 2021 was 5.86 billion yuan, an increase of 43.7% year-on-year. Among them, subscription revenue was 2.99 billion yuan, an increase of 49.0% year-on-year; advertising revenue was 1.49 billion yuan, an increase of 38.8% year-on-year; live broadcast revenue was 1 billion yuan, an increase of 39.6%; and revenue from other innovative products and services was 380 million yuan, an increase of 34.4% year-on-year. Himalaya's paid subscriptions, advertising, and live broadcasting have become the three pillars of platform monetization, and rely on innovative businesses to achieve integration and development with digital publishing, film and television, e-commerce and other industries.

In 2021, the company achieved a gross profit of 3.163 billion yuan, an increase of 57.9% year-on-year; the gross profit margin increased significantly from 44.5% in 2019 to 54.0%. It can be seen that in recent years, Himalaya's revenue and gross profit have maintained strong growth. In terms of horizontal comparison, Himalaya's gross profit margin level in the entire Internet audio and digital music industry is also significantly ahead of Tencent Music by 30.1%, 29.0% by Lychee and 2.0% by NetEase Cloud Music.

It is worth noting that although the company has not yet achieved profitability, the net loss ratio has narrowed significantly. From 2019 to 2021, the company's adjusted losses for the year were 749 million yuan, 539 million yuan and 759 million yuan, respectively, and the adjusted net profit margin increased from -27.8% in 2019 to -13.2% in 2020, and further increased to -13.0% in 2021.

For the increase in operating loss in 2021, Himalaya said in the prospectus that the main reasons are two aspects. First, the share payment expenses caused by the equity incentive and the increase in the fair value of preferred shares that had previous exercise conditions increased by 710 million yuan, which is not directly related to the company's operating performance. This kind of loss is a common situation for Internet technology companies when they are listed, and Xiaomi, Meituan, Kuaishou, etc. are all facing public doubts because of such huge losses. But in fact, this is because the company's pre-listing valuation has grown too much, the "floating profit" value of shareholders and executives has become larger, and the greater the loss brought by fair value to the company, reflecting the value appreciation of investors. With the successful listing of the company, this part of the loss is no longer included in the statement, usually as an adjustment.

Second, sales and marketing expenditure increased by 920 million yuan, of which channel promotion expenditure to support user acquisition increased by 380 million yuan, and brand and advertising expenditure to promote a series of brand activities increased by 340 million yuan. Although the absolute value seems to increase a lot, due to its higher revenue growth rate, Himalaya's sales and marketing expenses accounted for 45.2%, 41.9% and 44.9% of revenue in 2019-2021, respectively, which has been stable at around 45%, and the trend has declined slightly. Compared with Internet companies such as Kuaishou, Pinduoduo, and BOSS Direct Hire, the marketing rates of most Internet companies fluctuate at 40%-60%, and it is generally believed that less than 50% is a relatively controllable level.

The huge and continuously rich content library brings about the continuous improvement of user stickiness and payment rate

According to the prospectus, the number of Himalayan content creators exceeded 13.51 million in 2021. Himalayas produces an overall volume of 340 million audio and 4.9 million audios in audiobooks, covering a wide range of audio content over 100 types, including education and training, history and humanities, parent-child relations, business and entertainment, with a total duration of about 2.4 billion minutes. In 2021, the number of content rights acquired by Himalaya increased to 57,184, and established strong and long-term partnerships with many online platforms and publishers, including Reading Group, CITIC Publishing House and Jinjiang Literature Network, as well as interpretation teams or writers such as Deyun She and Wu Xiaobo.

Operating costs have always been Himalayas' biggest cost expense, mainly including the revenue share of content creators and the cost of purchasing copyrighted content. However, according to the data disclosed in the prospectus, the operating cost of Himalayas fell significantly from 55.5% to 46.0% in 2019-2021. In 2021, Himalaya paid $1.6 billion in revenue to content creators and signatories. Quality content often means greater traffic, and by the end of 2021, the cumulative number of listens to the "Three-Body Problem" audiobook and radio drama on the Himalaya platform, as well as the classic Disney story collection, was 926 million times and 358 million times, respectively; the anchor "Purple With Sound" platform had more than 20 million fans and the program was listened to more than 64 billion times.

The company's average monthly active users across the scene reached 268 million, nearly doubling from 140 million in 2019. Among them, the average monthly active users of mobile terminals reached 116 million, the average daily listening time of mobile users was 144 minutes, and the total listening time of content was 1,744.1 billion minutes, accounting for 68% of the listening time in the whole industry.

Compared to other online audio platforms, Himalaya's users are more sticky and active. According to the prospectus, Himalaya's paying users and payment rate have increased year by year. In 2021, the number of paid members was 14.4 million, an increase of 52% year-on-year. The mobile user payment rate increased to 12.9%, higher than the 12.4% payment rate announced by Tencent Music in 2021 financial report, and more than ten times the 0.84% payment rate of Lychee.

While IoT and other open platform users are still in the initial stages of monetization, Himalaya will continue to expand its online audio content touchpoints and distribution channels. By the end of 2021, Himalaya has cooperated with 74 automakers such as Tesla China, Mercedes-Benz, BMW, Audi, Geely, ANDD, and has established partnerships with major smart speaker and home appliance manufacturers in China. By expanding the user coverage of ioT and other platforms, Himalaya has effectively promoted user growth, with an average monthly active user of 152 million in 2021, an increase of 34.7% over 2020.

According to China Insights, opportunities in the Chinese market will continue to emerge as China's online audio penetration rate is much lower than that of the United States. In terms of average monthly active users, China's online audio market is expected to grow at a CAGR of 22.4% between 2021 and 2026, and the average monthly active users of mobile, IoT and in-vehicle scenarios are expected to grow to 911 million in 2026. In the future, based on the 100 billion-level blue ocean market that has yet to be developed in the audio industry, as well as the in-depth excavation of the two major scenarios of home and car, audio companies represented by Himalaya still have a very large room for development.

R&D investment is increasing to create a scientific and technological infrastructure for the audio industry

In 2021, Himalaya technology and R&D personnel accounted for nearly 40%, and R&D expenditure accounted for 17.5% of revenue, higher than NetEase Cloud Music and Lychee's 12.4% and 12.5%. In terms of investment scale, Himalaya's R&D expenditure increased by 118.0% from 470 million in 2019 to 1.03 billion. Himalaya continues to develop advanced proprietary AI technologies and big data analytics capabilities to improve operational efficiency while creating long-term sustainable value for 268 million full-end monthly active users, 13.51 million content creators, tens of thousands of advertisers, and other partners in the audio ecosystem.

Enable more efficient content creation, content recommendation, and dissemination by optimizing natural language processing (NLP) technology and the application of automatic speech recognition (ASR) technology. At the same time, text-to-speech (TTS) technology is constantly being enhanced to mass-produce audio content in a more cost-effective and efficient way.

In recent years, Himalayas' AI voice technology has achieved great results. At the beginning of this year, two of Himalaya's speech technology achievements were included in the world's top academic conference "2022 IEEE International Conference on Audio, Speech and Signal Processing". Previously, the Himalaya Intelligent Speech Lab used TTS speech synthesis technology to launch the "Shan Tian Fang Sound Reproduction" series of albums. Based on the self-developed TTS framework, Himalaya also collected the true voice of the head anchor "Xi Dao Gongzi" to create the AI anchor "Xi Xiao Dao", and cooperated with the AI continuation application "Caiyun XiaoMeng" to create the first AI radio station that was completed by AI from story creation to performance. AI voice technology has attracted media to accelerate the layout of audio content, and brand radio stations such as Tesla have also launched AI albums with the help of Himalaya's AI language technology.

Continuous increase in R&D investment has built a deeper and deeper moat for the Himalayas. Himalaya empowers content creators through AI technology, industry-leading audio-related technologies, and business intelligence analytics, and provides them with a set of technical infrastructure and tools; through the analysis of user preferences, to provide users with targeted and personalized content search and recommendation, thereby improving their experience, enhance their stickiness and loyalty; using AI technology and data analysis capabilities to adjust the frequency and form of advertising to better match users' preferences, thereby improving users' acceptance of advertising. And improve the effectiveness of advertising delivery.

According to China Insights, the revenue of China's audio market is expected to further increase from RMB20.6 billion in 2021 to RMB120.4 billion in 2026, with a compound annual growth rate of 42.3%. It is foreseeable that With its leading market position, rich and evolving content ecosystem and strong technology, Himalaya will have the ability to further achieve organic growth, meet the changing needs of users, continue to expand the user base and increase activity, improve diversified monetization capabilities and platform operational efficiency, and achieve better quality profitable growth as soon as possible.