Reporter | Ge Zhenwei
On the evening of August 26, Wondershare Technology (300624. SZ) announced its 2021 interim results. The company achieved revenue of 503 million yuan in the first half of the year, an increase of 5.94% year-on-year, excluding the impact of the decline in the US dollar conversion rate on revenue of -8.65%, an increase of about 14.01% year-on-year.
Although the income rose, the net profit attributable to the shareholders of the listed company was 47.277 million yuan, down 47.09% year-on-year; the net profit attributable to the shareholders of the listed company after deducting non-recurring gains and losses was 38.243 million yuan, down 53.85% year-on-year.
Less than fifteen minutes after the opening of the market on August 27, Wondershare Shares fell rapidly by more than 10%.
This earnings report was a surprise. As a domestic software leader, Wondershare has maintained a strong growth momentum in the past few years, and is also known as the "Chinese version of Adobe" in the industry. Why did the financial profit suddenly decline in the first half of this year?
<h4>Wondershare Technology has come to a crossroads</h4>
"The company wants to exchange short-term profits for future growth space", the relevant person in charge of Wondershare Technology explained the reasons for the financial decline to the interface news Greater Bay Area channel reporter.
On the one hand, Wondershare's transformation of SaaS has led to revenue deferral. On the other hand, the company invests a lot of money in research and development. These two are the most important reasons for profits.
SaaS (Software as a Service), as the name suggests, is a model for delivering software over the network, essentially a change in the way software is delivered, and the right to use replaces ownership, which belongs to a kind of "subscription economy".
The "subscription" business model determines that SaaS does not generate all the revenue when the sale is achieved, but through its late repeated purchases to achieve revenue growth, that is, SaaS turns the original one-time sale into an installment lease.
In other words, the transformation of saaS revenue model, from the past one-time payment model of selling software, has transformed into an installment payment model, which has caused a considerable impact on the profit of Wondershare Technology in the current period.
Interface News learned that at the 2020 year-end strategy seminar, Wondershare Technology conducted a fierce debate on "whether to take the SaaS route": if the transformation to SaaS means more research and development investment, it is bound to sacrifice short-term interests and affect the company's immediate performance; if it refuses to take the SaaS route, product competitiveness will decline in the long run, which is contrary to the willingness to become the "Chinese version of Adobe".
"At that time, I led 10 cadres to form a squad, and together with the squad of technical cadres, I took to the stage to debate whether the company should carry out SaaS transformation." Zhang Zheng, vice president of Wondershare Technology, described the debate scene at that time to the reporter of the Interface News Greater Bay Area Channel.
Through this debate, and then to make decisions at the president's office meeting and the board of directors, Wondershare Technology finally chose to transform to SaaS more firmly.
SaaS software is rapidly replacing traditional software, and this trend is already evident. Bessemer Venture Partners predicts that 94% of the software market will be occupied by SaaS in the future. In the CRM space, for example, SalesForce, the largest SaaS vendor, has outperformed traditional software vendors to become the market leader.
To some extent, wondershare technology's financial trend is converging with Adobe's transformation. The latter's income declined for two and a half years, and then rose again. In September 2020, Adobe's stock price reached $536.88 and its market capitalization exceeded $257.7 billion, making it the world's most valuable creative software giant.
"This trough is the price that has to be faced in the process of transformation." Zhang Zheng said.
In fact, Wondershare began to think about the transition to SaaS in 2019. In 2020, a small number of the company's products tried subscription fees. Entering 2021, the company officially launched the transformation and implemented a paid subscription model for large-scale products. At the same time, systematic investment in AI, big data, resource effects, etc. required to support SaaS transformation has been carried out, and many talents including doctoral and postdoctoral levels have been introduced.
During the reporting period, Wondershare Invested 142 million yuan in R&D, an increase of 96.54% year-on-year, and R&D expenses accounted for 28.22%.
The company's R & D personnel have increased from 557 in the same period last year to 818, and R & D personnel accounted for 57.08%.
Liu Wei, general manager of Wondershare Technology Center, said that the core competitiveness of future video editing is to recommend algorithms, and the company's current AI algorithm technology team has more than 100 people. In his view, a technology company should be willing to invest in technological innovation, rather than competing with others to buy vegetables.
<h4>How far away is it from "China's adobe"</h4>
Wondershare Technology was founded in 2003, R & D headquarters in Shenzhen, the main products include video creative software, drawing creative software, document creative software, utility software, with Wondershare Meow Shadow, Edraw Icon, Ink Knife, Wondershare Filmora and other star products.
Wondershare Technology's software product revenue mainly comes from overseas, and it has become one of the companies with the highest sales revenue from creative software exports in China.
In fact, Wondershare's unique software going to sea model was created by the special industry environment at that time. In the early days, the domestic market did not have the habit of paying for software, and it was difficult to verify that it was difficult to make a profit by selling software.
Wu Taibing, chairman of Wondershare Technology, said that there are two main reasons: first, China's awareness of software payment is not strong, and intellectual property control is not ideal; the second is the problem of the value of the software itself, the company's software payment price is too high, and there are too few Chinese people willing to pay.
With China becoming the world's largest economy, Wu Taibing judged that in the next 5-10 years, China is expected to become the world's largest digital creative software market. Under the domestic substitution outlet, the software industry will usher in a new round of layout opportunities.
According to the 2021 semi-annual report, Wondershare Technology's domestic software revenue increased by 32.14% over the same period last year.
"Now the Chinese market ranks third, second only to the United States and Japan." Zhang Zheng said.
Wondershare Technology focuses on the layout of the digital creative field, identified the video creativity track, and positioned the target user population between the entry level and the professional level, such as Internet celebrity bloggers, UP owners, gamers, etc., the company called this part of the people harmoniousator.
Communicator has a strong desire to pay and purchasing power, but they disdain to use one click to achieve that everyone is an internet celebrity face, and they do not like or adapt to too complex and professional operations, so they need a digital creative tool that combines ease of use and professionalism very well.
"The advantage of Wondershare products has always been 7 or 8 points of Adobe performance, but the ease of use is its 12 to 15 points."
In the first half of this year, the company's subscription model revenue showed a continuous upward trend, and the proportion of subscription revenue in the overall sales revenue reached 59.63%, an increase of 29.63% over the end of last year. In June 2021, the number of monthly active users of the company's main products was 77.4 million, a significant increase from the same period last year.
In 2018, Wondershare Technology landed on the capital market and became the only A-share listed company with overseas software sales as its main business. Less than 40 trading days after the company was listed, the increase was more than 4 times, and it was in the limelight for a while, and it was called the "new demon king" by the market.
Just like the story of the stock price continuing to fall sharply after the departure of the floating capital, the stock price of Wondershare Technology began to fall rapidly after reaching its peak. After experiencing a rollercoaster-like stock price rise, the former demon King Wanxing Technology has gradually disappeared. As of May this year, its stock price hovered around 40 yuan.
On the evening of June 2, at the launch of Huawei's Hongmeng operating system and Huawei's all-scenario new products, Wondershare Technology officially joined hands with Huawei, and its Wanxing Meow Shadow became the only pre-installed video creative software for Huawei's new tablet products such as HUAWEI MatePad Pro.
As an authentic Hongmeng concept stock, Wondershare Technology was sought after by the capital market in June, and its stock price doubled, reaching a maximum of 84.92 yuan per share. However, as the market cools, its stock price gradually returns to more than 40 yuan. Not only Wondershare Technology, but other Hongmeng concept stocks including Runhe Software, ArcherMind Technology, Kelan Software, etc. have obvious pullbacks.
It is understood that the current cooperation between Wondershare Technology and Hongmeng is more of strategic significance, which is intended to allow Wondershare Technology and Wondershare Meow Touying to expand the domestic market faster.
However, it is undeniable that the trend of domestic software substitution has been very obvious, and the cooperation between Wondershare Technology and Hongmeng can be described as a first opportunity. At present, it is particularly important to increase investment in research and development and make up for technical shortcomings.
On the other hand, Wondershare Technology has also strengthened its own strength through acquisitions. The company acquired 72.44% of the equity of Hangzhou Gexiang Technology Co., Ltd. with self-financing of 214 million yuan. It is reported that the acquisition and integration work is now close to completion.
"In the long run, the valuation of a company depends on its ability to create value (profitability), that is, it can build a long-term moat through SaaS subscriptions, which is the real SaaS company." Yang Weiwu, chairman of Yunyue Capital, once told the interface news Greater Bay Area channel reporter
To sum up, Wondershare wants to become the "Chinese version of Adobe", and there is still a long way to go. The challenge is only just beginning after management decided to make this difficult transition SaaS. How long it will take to get out of the financial trough will take time to verify.