With a loss of 5.4 billion yuan, can the "anxious" listing catch up with the last train of new consumption?

Image source @ Visual China

Wen | Rong Finance, the author |

In early April, Banana Holdings Limited (hereinafter referred to as "Banana") submitted a prospectus to the Hong Kong Stock Exchange for an IPO in Hong Kong, and if successfully listed, Banana will become the "first sunscreen stock" in China.

However, starting from the second half of 2021, the new consumption track has gradually cooled down, the amount and amount of financing in the entire industry are declining, and the "outlet period" of the new consumer industry seems to be about to blow through, and at this time, under the banana listed, can it catch up with the tail bus?

While growing, losing money

Founded in 2013, the first product launched is a double-layer small black umbrella that focuses on "sunscreen effect"; since 2017, the product line under banana has begun to extend to non-umbrella hard sunscreen products, launching categories such as sleeves and hats; in 2019, the product line under banana has been further expanded to accessories such as sunscreen clothing and masks.

According to the prospectus under the banana, its revenue in 2019-2021 was 3.85, 7.94 and 2.407 billion yuan, and the gross profit was 192, 4.56 and 1.421 billion yuan, respectively.

The "rapid increase in income" under the banana in the past three years, and the trend of consumption upgrading also has a certain relationship, with the deepening of the self-media on beauty education, consumers' awareness of anti-sun and skin protection is gradually improving, to a certain extent, but also let the banana bet on the "sunscreen anxiety" segment of the track.

According to Euromonitor consulting data, the compound growth rate of China's defense sun products market size from 2006 to 2020 was 11.6%, much higher than the global average growth rate, and it is expected that the market size will reach 24.4 billion yuan in 2024.

In the process of its development, banana has also been developed from the core product of "umbrella" to clothing, hats, umbrellas and accessories, and by 2021, the proportion of the above categories in banana revenue has been very balanced.

With the adjustment of the product line, the brand positioning under the banana has also changed from "sunscreen items" to "urban outdoor", urban outdoor is a rapid rise in the past two years, aiming to break the boundaries between urban and outdoor, but also quite recognized by middle-class consumers.

With the advent of the "camping fever" after the epidemic, people are more pursuing a healthy outdoor lifestyle, so the sunscreen clothing track is also in a stage of rapid growth. According to China Insight Consulting, the compound growth rate of the mainland sunscreen clothing market between 2016 and 2021 is 5.9%, and the overall market size will reach 61.1 billion yuan in 2021.

Banana once again grasped the market outlet, which makes bananas become the first major sunscreen clothing brand in China, banana said that in terms of total retail sales and online retail sales in 2021, it has a market share of 5.0% and 12.9% respectively, and online retail sales are more than 5 times that of the second largest brand.

Although the entire sunscreen clothing market has not reached 100 billion, in the market size of more than 60 billion yuan, Banana xia already has a leading market share, why is the profitability far from keeping up with growth?

According to the prospectus, in the 19-21 years, the net profit attributable to the mother of the banana was 0.23 billion yuan, 77,000 yuan and 5.473 billion yuan, respectively, and the adjusted net profit according to non-IFRS was 0.197, 0.394 and 135.7 million yuan, respectively.

From a loss of 5.4 billion yuan to a profit of 130 million yuan, the difference in the middle is indeed very large, the prospectus explains, the main reason is that the preferred stock accounting can be divided into "liabilities" or "equity" two ways, the banana will be "convertible redeemable preferred shares" classified as liabilities, but after the company is listed, this part of the liabilities will be automatically converted into common stock, reclassified as equity.

Convertible redeemable preferred stock is one of the common financing methods, when the investor exercises the right, the preferred stock is converted into ordinary shares at the agreed transfer price ("convertible"), and when the right is not exercised, the enterprise redeems the preferred stock at the agreed interest rate and pays interest ("redeemable"). To put it simply, this part belongs to equity cash-out, which is to be returned to investors or the founding team through capital.

Looking back at the multiple rounds of financing under bananas, the participating institutions include Sequoia Capital, Cornerstone Capital, Bee Qiao Capital, China Renaissance Capital, etc., from the valuation of sequoia Capital in 2015 when it participated in the Series A financing of only US$29 million, to the current valuation of about US$3 billion under Banana, which has increased by nearly 100 times. During this period, whether it is the investment institutions involved in financing, or the senior management team under banana, they have "cashed out" through equity transfer.

Of course, in the capital market, equity transfer is a very common operation, after all, this is also the reason why capital recognizes a company and invests in it, hoping to wait until the company's valuation increases to cash out equity.

However, for the enterprises that have just impacted the listing of bananas and need more funds to expand the market, the capital is so anxious to "cash out", it is inevitable that people will not think more, is the capital market not confident in bananas? Looking at the adjusted net profit under the banana, it is only about 100 million yuan, which is indeed a little less, so why is it?

The "pit" of new consumption

With the "ebb tide" of the new consumption track in the capital market, many new consumer unicorns that ran out in the past have also gone down in performance and valuation, such as Yixian E-commerce (Perfect Diary), Bubble Mart, Nesher's Tea, and Helens have fallen below the issue price.

In the case of Perfect Diary, for example, it has been losing money since its inception, with losses of more than 1.5 billion yuan last year, and it is facing the risk of delisting because the stock price fell below $1.

And these new consumer brands do have a lot in common with bananas. Some investors have summed up the new consumer brand's way of playing: choose a differentiated category, it is best to avoid head competition, and there is a certain amount of consumption; and then in order to quickly start the project, at the beginning, do not choose to build a factory, but open up the supply chain, find a foundry, the packaging tone should meet the tastes of young people; finally, it is large-scale online marketing, especially to occupy the social platform, through large traffic to seize the user's mind.

In the prospectus under the banana, the above playing style has also been verified, and the prospectus data shows that the sales cost and marketing advertising expenditure under the banana have combined to eat 60% of the company's income.

"Melt Finance" first looks at marketing and advertising spending. From 2019 to 2021, the distribution and sales expenses under the banana accounted for 32.45%, 40.7% and 45.9% of the revenue, respectively, of which advertising and marketing expenses have always been the majority, and last year this part of the expenses reached 590 million, which is a quarter of the company's annual revenue.

According to the data, in 2021, Banana cooperated with popular star Zhao Lusi and more than 600 KOLs, bringing 4.5 billion views to the brand. Taking The Little Red Book as an example, the relevant notes under the banana reach 30,000 +, and consumers can be directly channeled to the corresponding official flagship stores of each platform to complete the purchase after browsing the relevant notes or videos to get grass.

In addition to social platforms, Banana also frequently appears in the live broadcast room, Li Jiaqi, Luo Yonghao, etc. have brought goods for them, in addition, from May to June last year, in the next sales node of Banana, there were more than 60 Taobao anchors who brought goods for them.

Look at the cost of sales. At present, bananas use the ODM foundry model, the company only undertakes front-end marketing and design, in the past three years, its sales costs were 192 million yuan, 338 million yuan and 986 million yuan, accounting for about 40% of revenue.

That is to say, advertising expenditure + product cost accounts for about 60% of revenue, but compared with marketing and sales costs, the research and development expenditure under the banana is not high, and its proportion in revenue has dropped from 5% in 2019 to 3% in 2021.

"Heavy marketing, light research and development", which is similar to most new consumer brands, such as Perfect Diary, etc., the advantage is that products can be quickly launched through OEM, and through advertising and marketing, it can quickly seize the market, which is conducive to the outbreak of the brand in the early stage.

However, the disadvantages are also obvious, the supply chain of the product is in the hands of the partner, which means that it is difficult to have barriers to the product, and the quality of the product may be unstable. In addition, the brand's traffic can be in the hands of social platforms, "burning money for traffic" this game is not unfamiliar, the key is, can the pay and gain be proportional?

Judging from the sales results, the heavy investment in online channels has indeed led to a rapid growth in online revenue under bananas, and the number of fans in its Tmall flagship store has also left many competitors.

In terms of the total number of paying users, the prospectus data shows that the total number of paid customers in its Tmall flagship store has increased from 1 million in 2019 to 7.5 million in 2021. In addition, it also depends on the user's loyalty, from the repurchase rate data, within three years, it is 18.2%, 32.9%, 46.5%, respectively, customer recognition and loyalty have been continuously improved.

From the data alone, "Melting Finance" has invested money in advertising and marketing, which has indeed led to the growth of sales, but if we refer to the history of new consumer brands such as Perfect Diary, it is not difficult to find that there are also "pits" in this.

On the one hand, with the intensification of online traffic competition, the cost of traffic is pushed higher and higher, PARKLU research platform data shows that in 18-20 years, the average price of mid-waist KOLs and head KOLs increased by more than 18%;

In addition, when "explosive + grass + live broadcast" becomes a conventional playing method, other brands can copy it, perfect diary as the "ancestor" of this style of play, but also by more similar beauty brands challenged, resulting in its revenue growth rate last year than the previous year fell by about 60 percentage points. Therefore, for bananas, in the past, "burning money for traffic" can bring benefits, but it is not necessarily necessary in the future.

On the other hand, even if bananas can continue to support the high investment of marketing by compressing other costs, new consumer brands often face an embarrassment, that is, their life cycle does not seem to be long, when the hot spots and outlets have passed, how long can the freshness of consumers be maintained?

For example, Xi Tea, Nai Xue's tea, and Wen Heyou, in the early days, all relied on a strong Internet celebrity effect to burst out of the circle, and the number of queues was more exaggerated than one, but after the heat passed, these brands also collectively entered the "cold winter", and Xi Tea and Nai Xue's tea announced price cuts this year, intending to retain consumers.

Return to product power

For new consumer brands, in order to give priority to expanding the influence of the brand and quickly seizing the market, the "heavy marketing, light research and development" as an early development model, or a helpless move. But when the brand already has a certain market influence, returning to product strength or is the key to long-term development.

So, let's take a look at the products under the banana, can they become the internal support for the continuous growth of the brand?

First of all, "Melting Finance" looks at the core advantages of the product. For sunscreen products, the core advantage is naturally the sunscreen effect and use experience, on the basis of providing the same sunscreen effect, whether the products under the banana can allow consumers to have a better experience in terms of comfort and appearance.

From the perspective of sun protection effect, Banana mentioned in the prospectus that its technical experts can carry out interdisciplinary cooperative research on mechanics, materials and textiles, and this cross-border technical perspective brings strong research and development capabilities, and the company has 123 patents in China.

However, the evaluation category of the big V "Dad Review" has evaluated a number of sunscreen umbrellas on the market, and the results show that the sunscreen effect of different brands of sunscreen umbrellas and sunscreen hats will not be too different.

What about the user experience? In the black cat bad reviews, zhihu, small red book, or can find a lot of complaints about the quality of the banana products, such as the separation of the umbrella handle and the umbrella surface, the poor quality of the umbrella bone, the weak wind resistance and so on.

In general, the sunscreen effect under the banana is not too prominent in the evaluation, and in actual use, consumers are actually difficult to feel the sunscreen quality of the product, then for consumers, only the design and product quality can be directly felt, but consumers recognize, at present, it is estimated that only the "fashion" under the banana is estimated.

Second, let's look at the price of the product under the banana. Under the premise that the appearance is acceptable, the quality is average, and the sunscreen effect is unknown, is the pricing under the banana attractive? In the same kind of products, the price of the sunscreen umbrella under the banana is about 200 yuan, while the price of the paradise umbrella is between 40-80 yuan, and the price under the banana is almost 3-5 times that of the similar product of the paradise umbrella.

In this way, bananas do not intend to take the advantage of "cost performance", which also means that consumers pay 3-5 times higher pricing than competitors, and can only be used to buy "fashion" and "brand" under bananas.

Can consumers recognize it? As mentioned above, the current is in the "ebb tide" stage of new consumption, placed in the first two years, in the context of consumption upgrading, consumers' sensitivity to prices is not so high, or there is still a "expensive is good" mentality, but with the continuous decline of the economic environment, young people's consumption tendencies have changed, the survey shows that nearly 40% of young people said that they chose to "buy less, buy better".

The drastic changes in the consumer environment may be the biggest crisis facing bananas, at present, whether it can catch up with the tail train of new consumption is no longer important, because the consumption track has changed, for bananas, how to adjust the strategy to meet the "new consumption 2.0" is the focus.

The key is still above the product force. First, it is necessary to continue to update and expand the product structure, which is actually what bananas have been doing, from umbrellas to more categories with higher gross margins, which has greatly improved the profitability of bananas, and its gross profit margin has steadily increased to 59.1% last year.

Banana also mentioned in the prospectus that sunscreen is only the starting point for exploring the urban outdoor lifestyle, and the future focus is on the shoe and clothing market and the urban outdoor market, and position itself as an urban outdoor brand.

Second, bananas still need to enhance research and development capabilities, improve the stability of product quality, in terms of pricing, also need to consider whether their own brand and quality can bear the "premium" in the end, how much strength to do how big the pie, rather than let consumers have the feeling of being charged "IQ tax".

Next, banana or has been ready to go out of the "sunscreen" market segment, towards a larger market space of shoes and clothing, outdoor market preparations, but there may also be more competitors, such as Lululemon, OhSunny and other domestic and foreign brands, I hope that after its listing to obtain the blessing of funds, can be used on the "blade", continue to improve the "product strength" of the product, in the Internet celebrity playing style and professionalism to do a good balance, there is a possibility of "living"!