Forgotten six rooms and peppercorns

Zebra consumption Ren Jianxin

Huafang Group, which has packaged six rooms and live broadcasting of peppercorns, is impacting Hong Kong stock IPOs.

Born with a golden key, but also seized the industry opportunity, from video sites to live broadcast platforms, why six rooms and peppercorns, is not able to win the competition?

When the live broadcast industry enters the second half, the industry transitions from the grassy era, aiming at the functional subdivision tracks such as e-commerce, games, sports, education, etc., why are the six rooms and peppercorns still adhering to the short and fast, lack of imagination space of the show live broadcast?

The answers to these questions are enough to explain the company's loss of monthly active users in recent years, declining performance and even losses, and seem to have made predictions for the company's future.

Fall behind league

If it were not for Huafang Group's pursuit of a Hong Kong stock listing, people may not remember the turbulent past of Six Rooms and Huazhuo Live.

In 1996, Liu Yan, a senior student in the Department of Mathematics of Peking University, joined Robertson Stevenson as an investment analyst and investment manager in the United States, and later served as an investment manager and consultant at Wall Street Venture Capital China Venture Capital. During this time, he participated in the financing and listing of Sina.com and AsiaInfo, accumulating valuable experience in the Chinese and American, Internet and financial industries.

Two years later, Liu Yan had a premonition that the broadband Internet would bring about great changes in society, and resolutely devoted himself to Internet entrepreneurship. After many defeats, he finally founded six rooms in 2006. In the initial period of video websites, self-made content such as "Bird Cage Mountain Bandits" rose rapidly.

Soon, the video website entered the era of hegemony, and the six rooms after the "defeat" transformed into one of the earliest live broadcast products in China. But it was very helpless, once again got up early, rushed to a late episode, and the company failed to enter the core head camp in the era of live broadcasting.

The reason is that Liu Yan's personal heroism has failed under the take-all model of capital + traffic of giants.

In 2015, Song Cheng Performing Arts (300144. SZ) acquired six rooms in the form of issuing shares + cash, priced at 2.6 billion yuan, an increase of 68 times; Liu Yan entered the listed company as a director and vice president.

After completing the performance commitment in 2018, the six rooms entered a period of decline, almost dragging down the parent company Songcheng Performing Arts.

In 2015, it was the outlet of the live broadcast platform, the live broadcast of peppercorns was launched, and a blood road was killed by inviting popular stars to settle in and other forms, and successively got Qihoo 360 and Tiange Interactive (01980. HK) and other institutions of financing.

However, the final market position of PepperCorn Live is similar to that of the six rooms, and the reasons are the same.

In 2019, the six rooms of "the same fallen man at the end of the world" merged with Huazhu Live, one rooted in the PC side and the other focusing on mobile Internet, forming a new online live broadcast entertainment platform Huafang Group.

Zhou Hongyi holds 38.21% of the shares through Qihoo 360 and other entities, and is the largest shareholder of Huafang Group and serves as the chairman of the company. Songcheng Performing Arts holds 37.06% of the shares, making it the second largest shareholder. Yu Dan, the founder of PepperCorn Live, serves as the executive director of the company.

Last year, it lost 1.5 billion yuan

On October 25, Huafang Group disclosed its IPO prospectus to the Hong Kong Stock Exchange, handing over the latest transcripts of six rooms and pepper live broadcasting.

The company quoted data from iResearch in the prospectus that the company ranked first in China's online entertainment live broadcasting platform in terms of cumulative downloads, and ranked second in terms of monthly active users and usage time from January to August 2021.

However, in terms of revenue for the six months ended June 30, 2021, the company ranks third among China's online entertainment live streaming platforms.

On the one hand, the online entertainment live broadcast industry is limited, and the e-commerce live broadcast platforms such as Douyin, Kuaishou, Taobao Live and other e-commerce live broadcast platforms and game live broadcast platforms such as Douyu and Huya are excluded, coupled with the download volume that the company has accumulated since the PC era, the company's industry ranking has a certain amount of water.

In addition, the difference between user ranking and revenue ranking also illustrates the limitations of the company's business gold content.

From 2018 to 2020, the company's revenue was 1.993 billion yuan, 2.831 billion yuan and 3.683 billion yuan, and the net profit was -187 million yuan, 191 million yuan and -1.525 billion yuan, respectively. In the first eight months of 2021, the company's revenue and net profit were 2.960 billion yuan and 232 million yuan, respectively, an increase of 25.21% and -7.93% year-on-year.

The huge loss in 2020 was directly due to the impairment of goodwill caused by the decline in the performance of six rooms. In the past three years, the revenue of the six rooms was 1.234 billion yuan, 1.152 billion yuan and 953 million yuan, and the net profit was 411 million yuan, 246 million yuan and 142 million yuan, respectively.

In recent years, the company's growth has been completely supported by peppercorn live broadcasting, and from 2018 to 2020, the revenue of the branch was 1.976 billion yuan, 2.166 billion yuan and 2.826 billion yuan, respectively.

As of now, the goodwill balance of Huafang Group is still as high as 700 million yuan, and on the basis of the company's performance decline from January to August 2021, it is expected that the annual performance will be under pressure.

The monthly active loss is tens of millions

The live broadcasting industry still has broad prospects, after all, this is one of the few major entrances in the mobile Internet field that still has sustained user growth.

However, live on the runway, there is no future.

In the short term, the live broadcast of the show generates revenue purely through tips and commissions, and it can indeed achieve stable profitability in the major subdivisions of the live broadcast industry. Huafang Group has been able to achieve profitability in some years thanks to this.

However, judging from the performance of competitors such as Kuaishou and Momo, this business model is encountering challenges. The decline in the number of live tippers has led to the shrinkage of the plate business, which has become an industry trend.

The focus of the live broadcasting industry has shifted to functional tracks such as e-commerce, games, sports, education, tourism, and poverty alleviation. Let me ask, e-commerce live broadcasting can bring goods, game and sports live broadcasting can enhance entertainment, the cultural attributes of education and tourism live broadcasting are being valued, what value can show live broadcast provide?

Moreover, the sword of regulation often hangs overhead. In 2020, Hua pepper live broadcast was interviewed by relevant departments for "spreading vulgar and vulgar content and failing to effectively perform the main responsibilities of enterprises".

In 2018, 2019, 2020 and January to August 2021, the average monthly active users of Huazhu Live were 41 million, 23.6 million, 27.2 million and 29.5 million, respectively, and the operating conditions were not as good as 3 years ago.

The platform is not competitive enough, in order to continue to attract anchor retention, Pepper Live has introduced a 30% industry-wide minimum commission rule. The company has disclosed that there were 15 million active anchors in 2017, but according to the company's IPO prospectus, the average monthly active anchors in the first eight months of 2021 were only 200,000.

In order to find new growth points and reduce its dependence on the live broadcast business, the company acquired HOLLA, a video chat dating app for overseas markets, late last year to open up social business in addition to live broadcasting. However, the company's revenue from January to August in recent years was only 71.77 million yuan, and it was still difficult to pick up the beams.