Yuex's 300 billion building collapsed, and its revenue fell by more than 80% year-on-year

Author|Lu Shiming

Editor|Gale

Recently, the parent company of Yuexi e-cigarette, Fogcore Technology, released its unaudited financial report for the second quarter of 2023.

According to the report, the company's revenue in the second quarter was 380 million yuan, a year-on-year decrease of 83.1%; Non-GAAP adjusted net income was $86.2 million, down approximately 86.4% year-over-year from $634.7 million in the same period last year.

As the "first brother" of the e-cigarette market, Yuexi can be said to have had ups and downs in recent years. It has risen rapidly in just three years, dealers are all over the country, and Yuexi stores can be seen everywhere in shopping malls, but in just two years, it has been hit hard by the regulatory hammer, and the profitability, scale, and secondary market performance have not been as good as before.

Fortunately, the position of the "leader" in the market still belongs to Yuex. With the implementation of a series of policies, the e-cigarette market is gradually moving towards standardization, and Yuexi has begun to recover in this market with slight signs of recovery by virtue of its original advantages in all aspects.

However, the technical threshold of the e-cigarette industry is not high, and the production cost is low, although Yuexi occupies half of the market, it still faces a lot of competitive pressure. Especially in the current uncertain market environment, the future of RELX is still very grim.

It fell sharply year-on-year and recovered month-on-month

Fog Core Technology's financial report of double decline in revenue and profit is not unexpected by the market, and even exceeds market expectations.

On March 11 last year, the mainland's "Electronic Cigarette Management Measures" was released, and companies in the industry need to obtain licenses to manufacture and sell products, including disposable electronic cigarette equipment.

On the same day, fogcore technology, which is listed on the US stock market, fell 20%, as low as $1.88, a full 95% drop from the all-time high of $39.11 hit shortly after listing.

Source: Snowball

It is understood that the subsequent release of the new national standard for electronic cigarettes mainly clarifies the basic components, processes, additives, and temperature of the atomization area. For example, the new standard requires that the atomizer should contain nicotine, should not be inducing to minors, and should not make the characteristic flavor of the product present other flavors than tobacco.

A wide variety of flavors is the main reason why consumers are gradually attracted to and rely on e-cigarettes. The data shows that other types of products such as fruit flavors previously accounted for about 90% of the market share. Banning the production of "fruit-flavored" electronic cigarettes is tantamount to losing half a life for fog core technology.

The impact of this policy does not stop there, in order to survive, fog core technology must also develop and produce new products that meet the requirements of the standard, which means a large expenditure.

According to the fourth quarter financial report last year, the product development cost of fogcore technology soared from 17.8 million yuan in the same period last year to 130 million yuan, an increase of more than 7 times.

But the "bad" thing is not over, at the end of September 2022, the State Tobacco Monopoly Administration issued the Notice on Strengthening the Supervision of Electronic Cigarettes, pointing out a series of relevant precautions. By November 2022, regulators began imposing a 36% excise tax on e-cigarettes.

The release of a series of "iron fist" policies has made e-cigarette players fall into the darkest moment, and the era of profiteering has become a thing of the past. As the "leader" of the industry, the loss of fog core technology is immeasurable.

The good news is that under the attitude of positive rectification, fog core technology has begun to become formalized. In mid-July 2022, Fogcore Technology announced that it had obtained a tobacco monopoly production enterprise license, and the approved annual production capacity included 15.05 million cigarette sticks, 329 million cigarette cartridges and 6.1 million disposable e-cigarette products.

Although the output is limited, it is also a "reassuring pill" for fog core technology. As long as the business is compliant and legal, "life" will always improve.

In fact, fogcore technology's revenue in the second quarter decreased by more than 80% year-on-year, but its sequential performance improved. According to the financial report, Fogcore Technology's net revenue in the second quarter of 2023 was RMB 380 million, an increase of 100.2% from the previous quarter.

Some analysts believe that doubling month-on-month means improvement, but this may be that the terminal is selling the previous inventory in the first quarter, and there is a need to replenish inventory in the second quarter.

Illegal products are once again proliferating

For the "year-on-year decline" financial report data, Fogcore Technology attributed the main reason to "illegal products".

Wang Ying, founder, chairman and CEO of Fogcore Technology, said: "The recent resurgence of illegal products has affected the pace of industry recovery, but we believe that these disturbances are only temporary, and national standard products will gradually replace inferior illegal products and win the trust of users."

Lu Chao, CFO of Fogcore Technology, also said: "In the face of external challenges, especially the interference of illegal products, we remain focused on improving operational efficiency and profitability in the second quarter. ”

Indeed, after the introduction of the new national standards, the banned fruit-flavored e-cigarettes have become "scarce goods", and some "underground" e-cigarette manufacturers and distributors are still producing and selling fruit-flavored e-cigarettes without a license.

Since the beginning of this year, a large number of electronic cigarettes marked with the words "milk tea cup" and "cola can" have been seized in various places, and these electronic cigarettes are cartoonish in appearance and have a variety of fruit flavors.

Even if the crackdown is stronger, under the huge profits, there are still "remnants" to take risks, and many illegal elements will use social media to sell a large number of illegal e-cigarettes through express logistics.

Zinc Finance found through Baidu Tieba "Milk Tea Cup Bar" that the bar is full of various advertising posts, most of which are titled "Can be women, full taste!" ", "always there", "all the time"... There is a WeChat ID left in the sticker.

Source: Baidu Tieba - milk tea cup bar

According to the "guidelines", Zinc Finance added an e-cigarette "dealer" nicknamed "Twenty-Three". The "dealer" sent Zinc Finance a note called "Today's Spot Inventory", which showed that the remaining Flying Mist flavors included melon, cola, mung bean, sweet potato, etc., as well as Yuexi "fruity flavor" series products, with relevant pictures.

Source: Zinc Finance

After a simple communication, the "dealer" said that VS atomization bomb "3%, net content 1.9ml 3PODS" specification of electronic cigarette cartridges, 90 yuan three boxes of free shipping. During the whole process, the "buyer" did not ask about the age and other relevant information, nor did he specifically introduce the "product".

In addition to "twenty-three", zinc finance has also added digital e-cigarette "dealers" such as "LP atomization for this number to temporarily not collect" and "Aaa-ration" through other social media, which is roughly the same as the sales method of "twenty-three", "dealers" will display illegal e-cigarette products in the form of pictures, and will use "typos" to avoid the risk of "banning", and use other accounts as collection accounts to avoid capital risks.

It is understood that the cost of producing and selling counterfeit electronic cigarettes is only a few yuan, and in the hands of consumers, it can be sold for up to one or two hundred yuan. Induced by huge profits, more and more people are committing crimes against the wind, and the formation of this black industry chain has indeed had a greater impact on electronic cigarette manufacturers who have obtained relevant production and sales procedures.

Of course, fog core technology attributes the main reason to this, which seems to be a little "avoiding the important and light".

It is difficult to return to the highlight, and the future is grim

For the growth process of Yuex, it seems that it can only be described as "rapid progress".

In January 2018, RELX was officially established, with the huge paradox of "quitting smoking" as the core selling point of the product. Just a few months after its establishment, it has become the best-selling e-cigarette in China. In June of the same year, Yuexi obtained 38 million yuan of financing led by Source Code Capital and co-invested by IDG Capital, becoming the darling of capital.

With the blessing of capital, YUEXI has carried out strategic cooperation with well-known enterprises such as Tencent and Baidu, and quickly increased its exposure and user attention with its strong traffic and resource advantages.

By the second quarter of 2020, Yuex's market share has reached 74%, which can be regarded as an industry "monopoly". Since then, there have only been two domestic e-cigarette brands, one is called Yuexi and the other is called "Other".

Photo: Yuexi Mall store

On January 22, 2021, Fogcore Technology, the parent company of Yuex, which has only been established for three years, successfully landed on the New York Stock Exchange. Defend the title of "first e-cigarette stock".

On the first day of listing, the offering price of Fogcore Technology was $12 per share. The opening price was $22.34, up 86% from the offering, and then the circuit breaker was directly triggered due to the intraday surge. As of the close of the day, Fogcore Technology reported $29.51 per share, an increase of about 145.92%, and its market value reached $45.8 billion, or about 300 billion yuan.

After the highlights, there will be darkness. The story of the later is well known, with the landing of a pair of "boots", the "building" built by Yuexi collapsed.

As of August 24, the share price of Fogcore Technology was $1.45 per share, with a total market value of $2.278 billion.

On the whole, the current "decline" of fogcore technology is not only in the capital market. As mentioned earlier, e-cigarette manufacturers currently have to pay a 36% consumption tax, which means that if you want to maintain profitability, Yuexi must increase prices. But the problem is that rising prices will cause them to lose market competitiveness.

At the same time, regardless of the impact of "black workshops", the competition in the e-cigarette industry is still very strong.

From the product itself, the technical content of most domestic e-cigarettes is low, basically all brands have mastered the "core" technology of e-cigarettes, and the business model is generally OEM, and the brand side mainly invests in marketing and promotion.

The product itself may surpass other brands, but other brands will definitely not lag far behind. As supervision continues to tighten, it is expected that e-cigarette players will further increase investment in marketing, brand building and other aspects.

The real industry reshuffle may begin. In the face of such a cruel reality and a grim future, it is difficult for Yuexi to return to the top.