From Weimob's refinancing, let's see how Chinese SaaS companies can survive the winter correctly

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From the perspective of the demand side, supply side and capital market of the SaaS industry, the current SaaS industry is in a low period.

On the demand side, due to the macroeconomic impact, enterprises have more or less reduced their digital transformation spending, and SaaS companies are facing the risk of slowing down the growth of new customers and reducing the number of orders from existing customers.

The investment and financing environment of the capital market and SaaS industry is becoming more mature and rational. Investors have shifted their focus from growth rate to profitability and sustainability, and are more likely to invest in companies that have proven in the market that they have a clear roadmap for profitability.

As of now, the latest funding news in the SaaS market comes from Weimob. Recently, Weimob Group issued three announcements that all conditions under its IPO placement agreement have been met, the company has successfully completed the placement, with net proceeds of approximately HK$308 million, and Weimob has successfully issued US$85 million convertible bonds. Together, with the joint support of investors who were previously held by CB for 21 years, the company's existing shareholder Tencent and new investors, Weimob Group raised a total of US$125 million.

On the supply side, SaaS companies feel the cold wave of the industry and gradually return to the essence of value. "Reducing costs and increasing efficiency" has become a widely recognized strategy for SaaS companies, but different enterprises have taken different paths to reduce costs and increase efficiency. Some SaaS companies only focus on short-term interests, and use the big knife to reduce costs and increase efficiency, and slash at "layoffs", "salary cuts", and "business shutdowns". There are also SaaS companies that focus on long-term value and take multiple measures to reduce costs and increase efficiency, and Weimob is one of them.

Weimob Group's annual report shows that in 2023, Weimob Group will achieve a total revenue of 2.228 billion yuan, a year-on-year increase of 21.1%. Gross profit reached RMB1.484 billion, and gross profit margin increased to 66.6%. Adjusted EBITDA narrowed significantly to -75 million yuan, a loss of 93.1% year-on-year, and adjusted net loss decreased significantly by 73.4% year-on-year.

On the same track, different choices will have different circumstances, and it seems that how to reduce costs and increase efficiency with high quality is also a science, and Weimob is worth considering as an example.

Keeping business, starting a business, and developing a business are interlocking

Under the cold winter of the industry, some SaaS companies have started a series of "thrift" to cut new businesses and optimize the personnel structure in exchange for a more stable financial situation. However, it is not a long-term strategy to reduce costs in exchange for temporary efficiency increases, and sustainable cost reduction and efficiency improvement strategies should not only reduce expenditure, but also open source.

Weimob's strategy of reducing costs and increasing efficiency focuses on two major directions: stabilizing the fundamentals at a high level and promoting new business with high standards.

Stabilizing the fundamentals is the foundation of survival. The first step for Weimob to reduce costs and increase efficiency is to "keep the business", focus on the core business, keep the core business, and make a good reserve of survival resources in order to meet the future market changes.

Judging from the current market situation, all SaaS companies are facing pressure on their main business. Competition in the SaaS market has intensified, SaaS products are seriously homogeneous, paying users are lost, and it is difficult to acquire new users. In addition, brand owners' advertising budgets have decreased, their own operating pressure has increased step by step, and marketing business is not easy to do.

To this end, on the basis of the promotion of the large-scale customization strategy, Weimob further penetrates into the industry, and tends to be more pragmatic and return to customer value. Focusing on more specific digital scenarios, there are differences in target customer groups, marketing strategies, and supply chain management among enterprises in different industries, which need to be deeply customized according to industry characteristics. Therefore, Weimob focuses on actual needs, and promotes the industrialization strategy based on the digital products, service advantages and industry know-how accumulated over the years of serving large customers.

According to the latest data, Weimob serves 47% of the top 100 fashion retailers, 43% of the top 100 commercial real estate companies, and 40% of the top 100 convenience chains, which is a major example of the effectiveness of its strategy.

In addition, Weimob's marketing business is also showing a diversified and large-scale growth trend. Further research shows that Weimob's marketing business is maintaining rapid growth by relying on the diversification of media channels, the full-link service, and the drive and support of innovative technology.

Weimob's return to value-driven has achieved initial results, and its "business reveal" has been successful. According to the financial report data, in 2023, Weimob Group's subscription solution revenue will be 1.349 billion yuan, a year-on-year increase of 4.5%, and the merchant solution revenue will increase significantly by 60.5% to 878 million yuan.

Expanding territory is the way to development. The second step of Weimob to reduce costs and increase efficiency is "entrepreneurship", and in the face of the severe external environment, Weimob has not given up the expansion of new business. In recent years, Weimob has laid out AIGC, short dramas, overseas and other fields, and its business territory has been expanding.

In the field of AIGC, Weimob has released the AI application-oriented product WAI to help improve business efficiency, which has been put into application in batches; in the field of short dramas, Weimob has strategically invested in the acquisition of bibimbap technology, a comprehensive film and television creative service organization, to enter the short drama market; in terms of going overseas, Weimob has established a subsidiary of "Weimob International" and launched the "SuperApp Solution" to further expand overseas markets.

It can be found that Weimob is not blindly expanding, but focusing on its core advantages, expanding its technical boundaries, capability boundaries, and market boundaries. At the same time, AIGC and short dramas are industries with huge market development potential and commercial value. It is predictable that Weimob's future development will continue to focus on its core advantages for strategic layout and prudent expansion, while maintaining sensitivity to market dynamics and technological changes, and constantly innovating and adjusting in order to achieve sustainable growth.

Only with a stable foundation can we have the ability to expand our territory, and only with the courage to innovate and start a business can we have the possibility of prospering our business, which promote each other and form a virtuous circle to promote the development and progress of Weimob.

Driven by AI and other technologies, we demonstrate the optimal solution of "reducing costs and increasing efficiency".

Weimob has been able to reduce costs and increase efficiency in a relatively "healthy" way, which has also benefited from its leading layout and persistence in the field of technology to a large extent. Judging from the results, Weimob's WOS, which was deployed in advance in 2021, and WAI, which was released in 2023, have become Weimob's voltage regulators for reducing costs and improving efficiency today, and also provide considerable flexibility for Weimob's operation. Once the market environment improves, Weimob will be able to seize new opportunities faster.

On the one hand, Weimob focuses on "efficiency improvement", and through the research and development of AI application-oriented product WAI, it empowers and strengthens the performance and efficiency of SaaS solutions and marketing services, unlocking new ways to improve efficiency.

As a leading enterprise in the SaaS field, Weimob has always been a pathfinder in technological innovation and the most active in the application of AI. In 2023, Weimob will release WAI, an AI application-based product based on large models, which will be integrated with Weimob's SaaS and marketing businesses to meet the multiple digital business needs of merchants.

AI that does not land is a castle in the air, and Weimob's AI layout focuses on making AI applications a reality.

In terms of SaaS services, Weimob WAI improves the intelligence level of SaaS products, simplifies the process of using SaaS products, and lowers the threshold for using SaaS products, so as to improve the product application efficiency of SaaS customers. For example, when a merchant needs to count member data, it only needs to wake up WAI and say a simple "how many members do I have" to get accurate results and page links, and data query is more efficient and convenient.

In terms of intelligent marketing, Weimob WAI automatically creates marketing content (articles, pictures, etc.) to improve the efficiency of content production and reduce the cost of content creation. For example, if a customer wants to do a live broadcast, they only need to click to wake up WAI to obtain information such as product live broadcast scripts, shopping guide materials, and promotional speeches.

It has to be said that Weimob has improved the efficiency and quality of SaaS products and marketing services through AI technology, and significantly enhanced the overall value of the platform. According to the 2023 financial report data, the availability rate of AI-generated product titles will reach 70% in the SaaS convergence scenario, and the availability rate of generated content will reach 80% after the combination of Weimob WAI and marketing business, reducing the burden of content marketing.

It is understood that in addition to the core business segments of SaaS and marketing, Weimob's latest short drama track is also expected to achieve a leap in competitiveness with the help of technological breakthroughs in AI video generation.

On the other hand, Weimob focuses on "cost reduction" and provides a technical foundation for the continuous promotion of the large-scale customer strategy and the implementation of the integration plan by building a WOS system, which solves the complex business needs of large customers and the R&D cost problems generated in the process of industrialization penetration, and ensures that there is a way to reduce costs.

For large customers, the WOS system integrates various SaaS application services, can provide full-link, full-scenario, and integrated SaaS products and innovative applications, and solves the problem of "one enterprise, multiple products, and multiple systems". According to Weimob's financial report data, during the reporting period, the comprehensive penetration rate of integrated business among new and old customers has exceeded 55%, and the coverage growth rate of integrated business among new and old customers has reached 139%.

For Weimob, the WOS system integrates three levels of technology platforms such as SaaS, PaaS, and digital ecological innovation, and has the ability characteristics of more flexible multi-product portfolio, more flexible multi-organization adaptation, and more flexible multi-role permissions, which is the hole card for Weimob as a SaaS enterprise to reduce technical costs.

Generally speaking, WOS enables Weimob to freely combine the products and functions accumulated in the past 10 years in the face of different types of complex needs, just like building Lego, and form solutions that adapt to demand scenarios with higher efficiency. Based on the standardized and modular design of the WOS system, Weimob's technical products can be developed and reused multiple times, which helps to shorten the R&D cycle and effectively reduce the time and cost required to develop functions for each large customer individually.

According to the financial report, Weimob Group's adjusted R&D expenditure decreased by 230 million yuan from 813 million yuan in 2022 to 583 million yuan in 2023.

The significant increase in revenue of Weimob's smart retail business also confirms that the WOS system plays an important role in promoting the strategy of mass customization. According to the financial report, Weimob's smart retail revenue in 2023 will be about 613 million yuan, a year-on-year increase of 19.5%, accounting for 45.5% of the subscription solution revenue. The number of Weimob smart retail merchants has reached 6,826, including 1,306 brand merchants, which has achieved growth for three consecutive years, and the average order revenue per user of brand merchants has also reached 195,000 yuan.

In short, with technology as the traction, Weimob has entered the right track of reducing costs and increasing efficiency. At a time when other SaaS companies are worried about turning to serving large customers, Weimob has taken precautions to develop the WOS system to provide a solid technical foundation for deepening the strategy of large customers, and at the same time, Weimob uses AIGC to create new high-quality productivity of AI marketing and SaaS services, providing the industry with a reference direction for the implementation of the strategy of reducing costs and increasing efficiency.

Refinancing: both affirmation and support

For SaaS companies, reducing costs and increasing efficiency is an eternal topic and a continuous challenge.

In the early years, the demand for digital products in the external market expanded rapidly, providing a large number of business opportunities for SaaS companies, promoting the prosperity of the SaaS industry and the carnival of capital. Today, the carnival of capital has gradually receded, the growth rate of companies has slowed, and investors have begun to pay more attention to profitability and long-term sustainability.

In this context, SaaS companies are gradually shifting from the "expansion-oriented" development model that focused on scale expansion and market share growth in the past to the "profit-oriented" development model that focuses on profitability and stable cash flow. This means that enterprises will pay more attention to the profit margin of products or services, optimize the cost structure, improve operational efficiency, etc., that is, further "reduce costs and increase efficiency".

As there are still many uncertainties in the overall SaaS market environment and the capital market is becoming more cautious towards SaaS companies, Weimob has obtained financing, which is undoubtedly an affirmation of Weimob. In particular, Tencent's participation in the transaction as a strategic shareholder represents Tencent's recognition of Weimob's long-term value and future growth potential as an important service provider in the ecosystem.

This may be related to Weimob's continuous innovation and optimization in the past year, which has led to the continuous improvement of gross profit margin and the increasingly obvious endogenous growth.

From a business perspective, on the one hand, the SaaS business, which is the "main channel" of Weimob, has developed steadily. Combined with the financial report data of previous years, it can be found that Weimob's subscription solution revenue and average revenue per user have maintained growth for four consecutive years. Weimob's SaaS business has been built to continue to lead the growth of large customers with its smart retail business, rapidly increase the industry penetration rate with the benchmarking effect of brand customers, and continue to provide customers with higher efficiency and consistent solutions through its integration capabilities.

On the other hand, the marketing business has achieved outstanding results as the "cash cow" of Weimob Group. According to the financial report data, in 2023, the gross revenue of Weimob's precise delivery of merchant solutions will soar to 14.47 billion yuan, a year-on-year increase of 44.5%. To summarize the current development strategy of Weimob Marketing, one is to expand its territory and reuse its previous capabilities as Tencent's super-head advertising service provider to more traffic platforms, the second is to intensively cultivate service links and industry scenarios to further open up profit margins, and the third is to drive marketing scenarios through technology products to help customers open up the integrated operation of quality and efficiency in the global scenario. It is foreseeable that whether it is from the total revenue or profit quality assessment, the marketing business is expected to build a higher "granary" for the group.

Combined with the verification of the 2023 financial report data, the gross profit of Weimob Group's subscription solution business increased by 16% year-on-year to RMB893 million, with a gross profit margin of 66.1%, and the number of paying merchants was 96,339, with an average revenue per user of RMB14,007, a year-on-year increase of 8%. In addition, the gross profit margin of the merchant solutions business increased from 58.7% in 2022 to 67.3% in 2023, with 66,905 paying merchants and an average revenue per user of RMB13,127.

From the perspective of strategic layout and management, Weimob's forward-looking and healthy operation are also worthy of recognition. Behind the decision to actively deploy AI and short dramas and deeply explore overseas markets, Weimob's strategic management and cash flow strategy is a necessary support for its strategic layout.

In the past year, Weimob has taken a series of measures in financial management to improve its cash flow position by continuously optimizing its capital structure. According to the financial report data, Weimob Group's operating cash flow in the second half of 2023 has turned positive at 60 million yuan, adjusted EBITDA has been 13 million yuan, and at the end of 2023, Weimob's cash and cash equivalents balance was 2.495 billion yuan.

A good capital structure can support the long-term development of the company, and Weimob's positive cash flow indicates that its operating activities are self-sustaining and growing. This is a very positive sign that Weimob's core business is generating enough cash to cover the costs of its ongoing operations and the investments it needs to continue to grow.

Looking back at the previous developments, it can also be found that Weimob's financing actions have their own rhythm, focusing on serving strategic development rather than financing for the sake of financing. In July 2019, Weimob Group completed the placement of HK$1.157 billion new shares, in May 2020, Weimob Group completed the issuance of US$150 million 1.5% convertible bonds, in May 2021, Weimob Group completed the issuance of US$600 million new shares and convertible bonds, and in January 2023, Weimob Group completed the issuance of HK$1.59 billion new shares.

Now, Weimob is only one step away from full profitability. Whether considering the performance of endogenous business growth, or the strategic layout and operating status, Weimob is on the path of sustainable development, which may be why even in the trough of financing, the capital side is willing to continue to transfuse blood to Weimob.

【Summary】

With the refinancing from Weimob, we may have found the answer to how Chinese SaaS companies can survive the winter correctly. The SaaS industry is entering a stage of value return, and the future is expected to reach the top of the SaaS companies that can reconcile growth and profitability, innovation and stability, and continue to create real value for customers.

Although the entire SaaS industry is currently undervalued, on the other hand, once the value is returned, the leading enterprises represented by Weimob will embrace the opportunity as soon as possible and take advantage of the trend. We hope to see more SaaS companies find a more sustainable development path, take "reducing costs and increasing efficiency" as a means rather than an end, and embrace value with the industry to survive the winter.