The big deal of 1.8 billion, the boss of Weimob has changed

Reporter|Chen Xiaoping, Zhou Xinyue, He Jipai

Editor|Jiang Yuying

Sun Taoyong, the founder of Weimob, suddenly changed his mind.

On the evening of January 21, Weimob announced that it had received constructive feedback from shareholders on the transfer of Shanghai Weimob's equity.

"After further evaluation of the potential transaction after considering the views of shareholders, a decision has been made to terminate the potential transaction. Mr. Sun said he had not yet reached a binding agreement and that the proposed deals could be counted.

Last week, he had planned to sell a controlling stake in Shanghai Weimob for more than $1.8 billion. Sun comforted that the termination of negotiations on a potential deal would not have a material adverse effect.

It's just that this wave of back-and-forth operations has greatly damaged Weimob's popularity.

Compared with before the transaction announcement, Weimob fell by more than 20%, and its market value has fallen below HK$5 billion.

Temporary change of hexagram

What Sun Taoyong plans to sell is roughly half of Weimob.

In the announcement on the 16th, he said that he planned to divest a subsidiary, transfer more than 50% of the equity of "Shanghai Weimob", and obtain more than 1.8 billion yuan in cash.

Sun Taoyong

Shanghai Weimob is the domestic operating entity of Weimob's marketing business, which helps merchants place advertisements on Tencent, Kuaishou and other channels, and then obtain rebates and service fees from the channels.

Its role is roughly equivalent to that of an advertising agency.

From January to June 2023, the revenue of merchant solutions, including advertising and marketing, reached 504 million, accounting for 41.7%, and the volume increased by 58% year-on-year, becoming the first engine to drive Weimob.

Its total gross profit is roughly 350 million, the gross profit margin is as high as 69.4%, which is 3.3 percentage points higher than that of subscription solutions, and the number of paying merchants is also growing on a large scale, from 26,770 in 2022 to 40,494 in 2023.

From the perspective of revenue and growth, as the core entity of merchant solutions, Shanghai Weimob is a core asset.

Sun Taoyong explained that there are two major benefits of stripping companies:

First, it will reduce the impact of Weimob's marketing working capital on the Group's cash flow, and second, it will facilitate the financing of Shanghai Weimob as an independent entity, which intends to seek a partial or full listing in the domestic capital market.

Once the sale is completed, the revenue of the merchant solution will no longer be consolidated, and the SaaS business that Weimob mainly retains will have slower growth and is in the investment period, and the profit is far away, which may not be beneficial to the existing shareholders.

Sure enough, the day after the news was announced, Weimob fell 11.6%, the trend was weak, and investors had a negative attitude.

Previously, the team was "in discussions with a number of potential buyers" and the deal appeared to be on the lookout for money.

Unexpectedly, Sun Taoyong suddenly changed his mind over the weekend, and he did not disclose the details of his change of mind, but only euphemistically mentioned the "shareholders' opinions".

According to public information, the core shareholders of Weimob are, firstly, Sun Taoyong and the management, and secondly, the institutional shareholders are mainly Tencent. It's just that the two together account for only about 20% of the shares.

Now, it is impossible to know exactly what the specific reason changed Sun's mind.

Heavy debt

Failing to push for a sale, Sun Taoyong's situation is also tricky.

Weimob has been losing money all year round, with heavy debts on its head, and cash flow is showing signs of tightening.

From 2020 to mid-2023, for a total of 42 months, Weimob has accumulated a net loss of about 4.2 billion, roughly losing 100 million a month.

During the same period, its operating and investment activities had a cash outflow of more than 4.6 billion, and Sun Taoyong had no choice but to supplement his funds with debts and other means.

As of June 2023, Weimob Bank has borrowed as much as 1.659 billion yuan, most of which are short-term debts, and at the same time, there are still 1.293 billion convertible bonds that must be repaid within one year.

From January to June, Weimob's total financial cost was about 80 million yuan (excluding interest income), and for every 15 yuan received, 1 yuan had to be paid interest.

All the cash and bank savings that Sun Taoyong can use totaled 2.613 billion.

At the same time, he wants to raise funds for the Weimob headquarters building under construction.

The project, located in Baoshan, Shanghai, with a total construction area of about 60,000 square meters and a total investment of about 1 billion yuan, is expected to be completed in October 2024, and will still require significant resources in the coming months.

Design drawing of Weimob headquarters building

Originally, Shanghai Weimob sold and cashed out more than 1.8 billion, and the cash on hand was enough to pay off the debt and the funds needed for construction.

Now that the sale plan has fallen through, he must find another way to deal with the financial challenge.

Fortunately, according to the latest announcement, the cash flow of Weimob's regular business has improved.

"Operating losses have decreased significantly year-on-year, cash flow has continued to improve, and operating cash flow has been positive in the second half of 2023. Sun Taoyong revealed.

In comparison, from January to June 2023, the net cash flow from operating activities was as high as -657 million yuan.

The situation of "blood loss" has fortunately been stopped in time, otherwise, in addition to selling some assets, Sun Taoyong would not have many options.

Repo appeased

In order to appease frightened investors, Sun Taoyong claimed that a buyback would be initiated.

According to the announcement, Sun himself informed Weimob that "he has full confidence in the overall prospects and growth potential of the Group" and plans to increase his shareholding in the public market in a timely manner in the next six months, together with his close associates.

The commitment to increase holdings was not announced. Sun Taoyong did not cash out on a large scale at the high point, and the cash he can use may be relatively limited.

The key to the recovery of Weimob's state lies in the fundamentals, and he has recently released multiple positives.

According to the disclosure, the group's "big customer" transformation has been complete, the retention rate of key customers is high, and Weimob's enterprise service business has maintained steady growth.

This is Weimob's starting business, contributing the majority of revenue, providing SaaS services for e-commerce retail, catering, local life and other industries, which is the key to reversing the decline.

Sun also envisions that by 2030, there will be more than 100 customers with tens of millions of incomes and more than 1,000 customers with millions of dollars.

However, the SaaS business is still in the investment period, and it may not be profitable in the short term.

Sun Taoyong also said that Weimob's international business is progressing smoothly, especially in the Middle East, and there are a number of projects to be signed, which are expected to become new business growth points.

Objectively speaking, the development of this newly supported sector is still in its early stages.

It may be a relatively safe marketing service that you decide to keep.

"With the acceleration of the commercialization of Channels, Weimob's marketing business is expected to maintain rapid growth this year. Sun Taoyong said that benefiting from the growth of video number advertising and regional deep cultivation, Weimob's marketing momentum is just right.

In Weimob's portfolio, this is now the ballast stone of performance.

In October 2023, Sun Taoyong issued a letter to all employees to start organizational reform, changing from a business group system to a business subgroup system, and establishing three sub-groups: Weimob Enterprise Services, Weimob Marketing, and Weimob International, to promote the independent accounting, decision-making and development of each business system.

Unexpectedly, in just three months, the core business decided to sell, and then suddenly stopped, showing that in the strategic direction, the core decision-making level has wavered.

For Sun Yongtao, it is not expected to be easy in the coming period.