With the rise of online audio, why am I more bullish on the long-term value of Himalaya?

Author: Belsey

The shape of the information society is undergoing interesting changes.

By 2021, more than 80% of the 1 billion Internet users in the Chinese market will open audio entertainment software once a day on average every month, with an average monthly usage time of more than 3 hours. Specific to the online audio market, the number of monthly active users has stabilized at 268 million, showing a steady upward trend as a whole.

The characteristics of modern life can explain this phenomenon.

Fast-paced life and fragmented time enable online audio to further expand consumer content scenarios, and its applicability in scenarios such as commuting, sleep assistance, and parent-child companionship makes it have stronger scene penetration. This is also why online audio, which is a way of obtaining information, is now being favored by more and more people, becoming a popular trend in the current market, and its commercial value is becoming increasingly prominent.

But then again, it's one thing to confirm the commercial value of the track, but it's a deeper job to identify quality players on the track. Truly high-quality assets not only have the current excellent economic model, but also should meet the pursuit of capital's value of time, in other words, have good growth expectations and have a deep moat.

Looking forward to the future from its commercial potential, we need to further examine the development trend of the online audio market, such as the deep integration with the publishing, film and television, and game industries; the increasing prosperity of the creator ecosystem; and the "cost reduction and efficiency increase" of technology-driven business models. The full link from content production to monetization, from the high product premium formed by high-quality content, to the accurate algorithm recommendation of marketing, and the continuous exploration of products and business models, are the current themes.

On 29 March 2021, Himalaya updated its prospectus on the Hong Kong Stock Exchange. With the help of the above judgment, the author will observe the fundamentals of the head player of the track, Himalaya, and briefly talk about the growth and competitiveness of the players on the online audio track through the content of the prospectus.

1

The content of the method is the core of competitiveness

As can be seen from the online audio industry and its penetration rate, the industry is still in the growth period of rapid development.

At this stage, it means that the realization of customer acquisition ability and user stickiness have become effective indicators for judging the competitiveness of user lifetime value (LTV). The rapid acquisition of traffic is an important task at this stage.

Long before the launch of The Himalayas in 2013, Phoenix FM and Dragonfly FM had opened up the mobile audio market with TV programs and radio station audio as the content. According to the Himalaya prospectus, the company's average monthly active users (MAU) at all ends in 2021 were 268 million, an increase of 24.4% year-on-year, of which the average monthly active users on mobile ends reached 116 million. Mobile users listen to an average of 144 minutes a day, with a total of 1,744.1 billion minutes of content, accounting for 68% of the industry's listening time.

According to CSC Consulting data, In terms of average MAU and total mobile listening time in 2021, Himalaya has become The leading online audio platform in China. According to the "2021 China Online Audiovisual Development Research Report", the user penetration rate of Himalaya reached 67.1%, occupying the first echelon position in the online audio industry.

In the online audio industry, the content ecology and the number of users are the basis for supporting the development of enterprises. Therefore, Himalaya's customer acquisition ability and user stickiness are directly related to the target user coverage it achieves in terms of high-quality audio content.

Himalaya aims to build an Internet-connected interactive platform for content creators and users to meet the differentiated needs of users of all ages, identities and occupations for content.

From the upstream point of view, around audio and content, Himalaya connects upstream and downstream industries, and is building its "audio content ecosystem" to enhance the user's willingness to use the product premium brought by content quality.

Its content ecology includes audiobooks, pan-entertainment audio, podcasts, knowledge sharing and audio live broadcasts. Through the "PGC+PUGC+UGC" strategy, Himalaya has achieved all-round coverage of audio content, from top professional generated content to long-tail user-generated content. At the same time, AIGC further enriches the content ecology and upgrades the audio content production model, and Himalaya has a greater imagination space in the future. According to the prospectus, the number of Himalayan content creators exceeded 13.51 million in 2021. With an overall production of 340 million audio and 4.9 million audios, Himalaya covers a wide range of audio content of more than 100 types, including education and training, history and humanities, parent-child relations, business and entertainment.

Himalaya has established and integrated comprehensive copyright content resources, ensuring the upstream copyright advantage and continuously producing high-quality audio content. Himalaya has strong and long-standing partnerships with numerous online platforms and publishers. In 2021, the number of content rights acquired by Himalayas increased to 57,184.

UGC is also an important part of maintaining the diverse ecology of the Himalayas.

UGC content accounted for 45.3% of the total platform listening time in 2021. Himalaya encourages ordinary users to participate in creating and sharing audio by giving users more convenient audio creation tools and expanding more audio categories (such as podcasts).

In August last year, Himalaya launched the "Himal Podcast Original Incentive Program" to start cash subsidies for original podcasts to help the growth of outstanding podcasts. In fact, Himalaya has also invested more in talent training.

From the downstream point of view, Himalaya has opened up space for co-growth with channels through a wide range of channel cooperation. Himalayan content distribution and terminal application scenarios are increasingly broadened to meet the diversified and all-scenario lifelong content needs of users. People can participate in sound-related activities such as listening, reading, and consuming anytime, anywhere.

For example, Through the layout of smart homes, smart speakers and the Internet of Vehicles, Himalaya has expanded rich and convenient terminal application scenarios, further enhancing the content penetration and user stickiness of the platform.

The data shows that Himalaya has reached cooperation with leading enterprises such as Ali, Xiaomi, Baidu, Tencent, Huawei, and Midea, and more than 93% of smart speakers have access to Himalaya's content. In the part of the in-vehicle intelligent terminal, more than 95% of the automotive companies such as Tesla, Porsche, Jaguar Land Rover, BMW, audi and so on have been deeply cooperated, and the TOP30 car brands have been connected to Himalaya's audio services. According to the prospectus, in 2021, the monthly active users of Himalaya Internet of Things and other open platforms have reached 152 million, an increase of 35% year-on-year. Among them, the monthly active users of vehicle intelligent terminals and home intelligent terminals are 0.49 billion.

Customer acquisition ability determines the increment that the business model can achieve; user stickiness represents the potential for stable realization of stock traffic in the long-term dimension. In short, there is traffic to be monetized.

Therefore, the strategy of "casting a wide net and catching more fish" is an important prerequisite for it to stand out in the growth period.

2

Valuable traffic is the next stage of "ferry ticket"

Although the industry as a whole is still in the stage of traffic acquisition, the traffic dividend of the Internet world has peaked, which means that the living space of various industries is basically determined, and it is only a matter of time before it enters the stock competition. Therefore, activating the user to realize the kinetic energy conversion from traffic acquisition to dividend realization means obtaining a "ferry ticket" to enter the next stage.

From the prospectus submitted on March 39, it can be seen that The revenue of Himalaya from 2019FY to 2021FY is about 2.68 billion, 4.05 billion and 5.86 billion yuan respectively, of which 2021FY increased by 43.7% year-on-year, and the performance showed a steady growth trend. China Insight Consulting said that from the perspective of total revenue, Himalaya is also in the first echelon. In other words, Himalaya has a more complete business monetization model, transforming its customer acquisition ability and user stickiness into cash flow.

By exerting its own platform effect, Himalaya has established a communication bridge between consumers and creators of audio content, activated user social behavior, enhanced activity, and created a good community atmosphere. Using the positive cycle between traffic growth and community atmosphere, Himalaya stimulates the willingness of users to pay for services that meet high-quality spiritual needs and information needs, thus paving the way for monetization channels such as traffic conversion, the establishment of a point system and a subscription service system.

Himalaya has formed diversified monetization channels, and paid subscriptions, advertising, and live broadcasting have become the three pillars of platform monetization. The content ecology continues to develop healthily, and an audio ecosystem based on content production, anchor incubation, and content distribution is gradually formed, and the ecological layout of the whole chain is taking shape.

In 2021, Himalaya's total revenue, 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% year-on-year.

Paid subscription services are the basic disk of the company's business. The ARPPU of the paid subscription business is also on the rise, thanks to the continuous introduction of high value-added innovative products by the paid single sale business, and the paid membership model has been widely recognized by more users. In terms of advertising, with the further integration of content and advertising in the future, brand and performance advertising revenue is expected to grow rapidly.

At the same time, the Himalaya Live MAU has reached 5.5 million in 2021, an increase of 61.5% over 2020. The potential of Himalaya's live streaming business has been recognized by institutions. Dongxing Securities believes that online audio users have a certain follow-up effect and emotional demand for favorite anchors, and in the future, with the improvement of the number of bloggers, the quality of live broadcast content, and the social value of audio live broadcasting, the number of monthly active users and payment rate of live broadcasting will rise synchronously.

It is worth noting that the prospectus shows that Himalaya has maintained a high gross profit and the gross profit margin has shown a continuous upward trend, with the gross profit margin rising from 44.5% in 2019 to 54.0% in 2021, with strong growth potential. Himalaya gross margin is leading in content platforms and is still showing a steady upward trend, and as the scale of the business continues to expand, the scale effect will bring promising profits.

Traffic that cannot be monetized will be greatly reduced in value.

When valuing growth companies, it is impossible to escape the most basic PEG model, and PE as the embodiment of current profitability is the most basic indicator. The profitability of a company depends on whether it can continuously convert passenger flow into cash flow, and use traffic to drive the improvement of user life cycle value. User lifetime value, as an incremental part of the economic model, is crucial to the improvement of the model and will ultimately determine the level of profitability.

Whether it can generate value for users and how to generate value for users is related to the user's willingness to pay, which is the key to the company's cash flow.

3

There are technological models that are the driving force of continuous evolution

From the prospectus, we can see that Himalaya attaches great importance to R&D investment.

In 2021, Himalaya's R&D expenditure was RMB1.027 billion, an increase of 64.6% year-on-year, accounting for 17.5% of the total revenue in the same period, and technology and R&D personnel accounted for nearly 40%. The continuous increase in investment in scientific research and technology has consolidated infrastructure capabilities and strengthened the construction of AI and big data, which is an investment for long-term sustainable value.

On the one hand, Himalaya uses proprietary artificial intelligence and big data technologies to deeply learn data, establishing an AI-based discovery and recommendation mechanism and a smart labeling system to improve the accuracy and efficiency of content distribution and user experience.

On the other hand, proprietary technology can also help content creators better produce high-quality audio content. For example, state-of-the-art text-to-speech (TTS) technology is able to effectively convert large amounts of text from news, articles, and books into audio.

In recent years, Himalayas' AI voice technology has achieved great results.

In early 2022, two of Himalaya's speech technology achievements were included in the 2022 IEEE International Conference on Audio, Speech and Signal Processing, the world's top academic conference. 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.

With the landing of AI technology means, the moat of Himalaya's own enterprises is widening and deepening, and it will continue to develop with the concept of long-termism, and the future market has great potential and imagination space. It is worth noting that the prospectus discloses that the net proceeds raised by Himalaya's IPO will be mainly used to continue to expand and enhance the content provided and empower content creators, and to enhance next-generation technology, AI and big data capabilities to further improve operational efficiency. In this sense, the continuous increase in R&D expenditure is a projection of the Himalayan long-term approach on the financial statements.

"Microsoft is only 18 months away from bankruptcy."

This is Bill Gates's judgment on the rapid iteration of the technology industry, and in this way, it is a requirement for Microsoft to maintain its growth.

With the intensification of competition in the industry, enterprises must maintain continuous growth and have the ability to quickly iterate with changes in the marginal changes of the market. Growth is another basic indicator in the PEG model, so it has also become the basis for the value judgment of funds in selecting high-quality targets.

The online audio industry, like many other Internet industries, needs to rely on customer acquisition, user stickiness, and business models. From the perspective of long-term scale, it is more necessary to increase R&D investment and affect the full link from content production to monetization - the high product premium formed by high-quality content, the accurate algorithm recommendation of marketing, the continuous exploration of products and business models, and many other aspects to bring consumers a more high-quality and immersive experience.

Therefore, R&D investment is an effective way for online audio players in the growth period to build a solid competitive barrier, continuously expand their business territory to a new ecosystem, and increase future cash flow expectations.

4

End

The "Sino-American mutual pity" market in the past few months seems to have shown signs of loosening; from the overall valuation of the market, the Hong Kong market is already a global valuation depression, and the premium of A-shares relative to H-shares is also at a high level in the past 10 years; the steady growth of the A-share market and the favorable policies of tax reduction and fee reduction have painted a bright color for market expectations in 2022.

As the cold fades and the bearishness is digested, the market will be revalued, and the panic that pervades the capital market seems to have dissipated. We see that the relevant target has already seen a shock bottoming action.

So focus on the fundamentals of the Himalayas.

In the short term, although the competition in terms of customer acquisition and user stickiness continues, in fact, Himalaya's polishing of the business model has begun to bear fruit, and revenue growth has achieved certain results. In this process, spending on research and development will support the company's long-term growth valuation premium.

The stage is set, and the competition is bound to become increasingly fierce. The next question is whose circle of capabilities, the business model, can ensure that they can run faster on the track. Can withstand the race against time, enterprises can win the recognition of the market. More bullish on the long-term value of the Himalayas?