Image source @ Visual China
Text | Business Data School, author | Zhu Tingting
According to the prospectus, in the shareholder structure of Huafang Group, Zhou Hongyi holds 38.21% of the shares through several companies such as 360 (SH: 601360) and Hua pepper No. 1, making it the largest shareholder. Songcheng Performing Arts (SZ: 300144) is the second largest shareholder, holding 37.06% of the shares.
Zhou Hongyi is expected to gain the fourth listed company after Qihoo 360, 360 Finance and Master Lu - Huafang Group.
According to the news on October 26, according to the documents of the Hong Kong Stock Exchange, Huafang Group, which has products such as peppercorn live broadcast and six rooms, has officially submitted a prospectus to the Hong Kong Stock Exchange and intends to be listed on the main board. The funds raised are intended to be used to enrich product content and services, marketing, technology research and development, M&A investment, etc.
According to the prospectus, Huafang Group's main business area is online social entertainment, providing a variety of services including audio and video live entertainment and social networking services. It operates peppercorn live broadcasting, six rooms and HOLLA. The Chairman of the Board of Directors of Huafang Group is Zhou Hongyi, and the Executive Director and CEO is Yu Dan. According to the prospectus, in the shareholder structure of Huafang Group, Zhou Hongyi holds 38.21% of the shares through several companies such as 360 (SH: 601360) and Hua pepper No. 1, making it the largest shareholder. Songcheng Performing Arts (SZ: 300144) is the second largest shareholder, holding 37.06% of the shares.
After walking through the blindfolded and wild grassy era, between the ups and downs, Huafang Group finally stood in front of the IPO gate. When the capital bubble gradually faded, the live broadcast battlefield after the Thousand Broadcasts War, there were only a few dozen survivors. With Baidu's US$3.6 billion acquisition of YY making waves, although Huya and Douyu were successfully listed, their stock prices went all the way down, and the merger plan also failed; the hong Kong-listed Yingke stock price has fallen to HK$1.51, with a market value of only HK$3 billion, which has shrunk by nearly 70% from its peak market value of HK$11 billion.
As one of the survivors of the "Thousand Broadcast War", the IPO of Huafang Group seems to be late, showing the performance of the family, how is the strength of Huafang?
<h2>Sitting on 10 million anchors, nearly 3.7 billion yuan a year</h2>
"Six rooms is so good, the income is so high, and you are such an ambitious elite, why do you want to merge with me?" Why not list it separately? In 2015, in the office of Hangzhou Songcheng Group, in the face of the question of Huang Qiaoling, chairman of Songcheng, Liu Yan, the founder of Six Rooms, went straight to the theme: I just came for money. I don't know if this "honesty" impressed Huang Qiaoling, and finally, Songcheng Performing Arts issued an announcement announcing the acquisition of 100% of the equity of six rooms for 2.6 billion yuan.
Two years later, Songcheng announced that it would reorganize six rooms for 3.4 billion yuan with Mijing Hefeng (the operator of Hua pepper live broadcast). Going around and around, the six rooms were eventually taken over by Zhou Hongyi and his pepper live broadcast. After integrating the channel advantages of the six rooms on the PC side, in the past 3 years, huafang group has run wild, in addition to the successful acquisition of HOLLA Group, social experiments, its honey branch technology layout virtual entertainment, to create a virtual idol IP "left song". Today, Huafang has about 10 million registered anchors, and its annual revenue is as high as 3.7 billion yuan.
In 2018, 2019, 2020 and the first eight months of 2021, Huafang Group achieved revenue of RMB1.993 billion, RMB2.831 billion, RMB3.683 billion and RMB2.96 billion respectively. According to the prospectus, Huafang Group is positioned to provide audio and video live entertainment and social networking services for global users, and its products include mobile flagship product Hua Pepper, PC flagship product Six Rooms and overseas video social networking products HOLLA and Monkey, etc., mainly from live product exchange virtual items and other services of live broadcast platform.
From the perspective of revenue composition, its revenue mainly comes from three major business segments, namely audio and video live broadcast services, social networking services provided by HOLLA Group and other services. Live streaming services are still the absolute basic disk of Huafang, and from 2018 to the first eight months of 2021, live broadcast revenue accounted for 99.2%, 99.6%, 99.6% and 97.5% of its total revenue, respectively. In other words, audio and video live broadcast revenue accounts for more than 90% of the total revenue, and it is very dependent on a single business.
In the live broadcast service section, Hua Pepper contributed more than 70% of the revenue, which can be said to be the "cash cow" of Huafang Group. In addition to live video revenue, the proportion of voice live broadcast products in total revenue has also increased year by year in recent years, and the revenue of voice live broadcast products accounted for 0.5%, 6.8%, 14.2% and 22.1% of the total revenue from 2018 to the first eight months of 2021, respectively.
In terms of gross profit, from 2018 to the first eight months of 2021, Huafang Group achieved gross profit of 302 million yuan, 706 million yuan, 1.011 billion yuan and 820 million yuan respectively, and the gross profit margin was 15.1%, 24.9%, 27.5% and 27.7% respectively. Among them, the gross profit margin of peppercorns remained relatively stable, at about 25%. But the gross margin of six rooms fell from 39.3% in 2020 to 35.2% in 2021, and the prospectus said that in order to increase user engagement, six rooms increased the cost of attracting and retaining independent anchors.
In 2019, the year after the merger, Huafang Group began to make a profit. From 2018 to the first eight months of 2021, the company achieved net profit (Non-IFRS) of -158 million yuan, 211 million yuan, 367 million yuan and 260 million yuan, respectively. It is reported that most of the sales costs of Huafang Group are the revenue share of the anchor or MCN virtual tip. In the first eight months of 2018 and 2021, the proportion of anchor costs to revenue in each period decreased, 74.6%, 67.8%, 66.4% and 66.1% respectively, which is also an important reason for the growth of its net profit.
For live video platforms, users and content have always been the driving force behind their performance growth. As of August 31, 2021, Huafang Group had 370 million registered users and more than 59.9 million monthly active users. Among them, there are 207 million and 077 million cumulative registered users in Huajiao and Six Rooms, respectively, and the retention rate of paid users in Hualian and Six Rooms is 78.8% and 66.1% respectively.
Although Huafang Group is still increasing its investment to attract user traffic, the decline in user activity data is an indisputable fact. From 2018 to August 31, 2021, the monthly active users of Huazhu Live were 41 million, 23.6 million, 27.2 million and 29.5 million, respectively. With the fading tide, the monthly active activity of peppercorns has dropped by 11.5 million in three years, and the monthly active users in 2020 are only 66% in 2018. The prospectus does not publish the monthly active data of the six rooms, and the latest data shows that the monthly active users of the six rooms are 25 million. Compared with the same industry institutions, user activity data seems to have encountered bottlenecks, according to the data of Ai Media Polaris, in January 2021, Huya Live's monthly active life was 27.8929 million, YY was 25.2621 million, Douyu Live was 22.1997 million, and Yingke Live's monthly active was 10.9864 million.
Generally speaking, the traditional live broadcast user traffic follows the anchor, and the main source of income of the live broadcast platform is user tips and traffic advertising revenue, which also means that if the anchor cannot be retained, the platform will also face the risk of user loss, and the importance of high-quality anchors is self-evident. As of August 31, 2021, the cumulative number of registered anchors on Huafang Group's platform was 10.7 million, and the average daily live broadcast time of each active anchor of each product in the first eight months of this year exceeded 230 minutes. Among them, Hua pepper has about 10.1 million registered anchors, with an average monthly active anchor of more than 200,000. The six rooms have 500,000 anchors.
"Anchors are the core competitiveness of live streaming platforms. However, with the development of the live broadcasting industry in recent years, problems such as resource monopoly and head effect have gradually become prominent, and it is difficult for mature anchors to innovate and for new anchors to grow, which has become a barrier in the development of live broadcasting. Yu Dan, CEO of Huafang Group, said.
It is reported that at present, the vast majority of the 500 big anchors of Huafang Group come from brokerage companies, and Huafang Group does not hesitate to "spend a lot of money" to purchase every year in this regard. According to the financial report, in the first eight months of 2020 and 2021, the procurement volume of the top five suppliers of Huafang Group was 420 million yuan and 396 million yuan respectively, and the procurement business was served by the anchor brokerage company, accounting for 13.8% and 16.1% of the total procurement, respectively.
Horizontal comparison with the same show live broadcast, the cost of the anchor in 2020 is 3.41 billion yuan. With the outbreak of new live broadcast content such as e-commerce, the single live broadcast mode of the show is facing a bottleneck of growth. The addition of short videos such as Douyin and Kuaishou has also intensified the competition in the live broadcast industry, according to statistics, Douyin and Kuaishou have become the most commonly used live broadcast platforms for the majority of users with a proportion of 41.1% and 44.4% respectively, which has directly led to many anchors turning to live e-commerce for "gold hunting".
According to iResearch Consulting, the size of China's video social entertainment market will reach 415 billion yuan in 2021, and the scale of China's entertainment live broadcasting market is expected to be 138.4 billion yuan. Based on the algorithm of Huafang Group, according to the revenue market share generated by entertainment live broadcasting, Huafang Group ranks third in the country, accounting for 13.5%, and the top two account for 31.2% and 30% respectively.
As Huafang Group rushes to the IPO, the value of its shareholders is bound to rise. According to incomplete statistics, since its inception, Huafang Group has completed at least 7 rounds of financing, and investors include Qihoo 360, Songcheng Performing Arts, Ceyuan Venture Capital, Plateau Capital, Cultural Center Fund, Mango Cultural and Creative Fund, etc.
Among them, Zhou Hongyi, the "Leader of the Red Cloth", as the largest shareholder, holds 38.21% of the shares through several companies, and Songcheng Performing Arts holds 37.06% of the shares through its wholly-owned subsidiary Global Bacchus Limited, making it the second largest shareholder. After the completion of the global offering, the company's two major shareholders will hold less than 30% of the shares, so the company has no controlling shareholders. In addition, Zhirun No. 1 and Zhirun No. 2 hold 4.38% through Sun Link Trade Limited, Siming Juncheng holds 3.85%, Zhang Fa holds 2.88% through JY Infinitas Limited, Shanghai Zuosan holds 2.63% of the shares, and Mango Wenchuang holds 1.54% through Mango Ningze Limited.
In the past two years, short video giants such as Douyin and Kuaishou have entered the game with huge traffic, squeezing more than 50% of the market share of pan-entertainment live broadcasting; Huya and Douyu have collectively accounted for 80% of the share of game live broadcasting; and B station, Tencent Music Entertainment (Kugou, National K Song, etc.), NetEase Cloud Music and other communities are also promoting live broadcasting under the subdivision vertical category. With the blessing of the capital market, can Huafang successfully break through in a sea of competition?
<h2>Does the flower house have a second growth curve? </h2>
Huafang Group launched voice social entertainment and network products, and "Hua Squeak" is one of the representatives. According to the prospectus, from 2018 to 2020, huafang group's voice live broadcasting services achieved revenue of RMB9.2 million, RMB193 million and RMB523 million, accounting for 0.5%, 6.8% and 14.2% of the total revenue in the same period respectively.
At the beginning of this year, Musk's American audio social networking software Clubhouse became popular around the world, and an invitation code that the whole network frantically begged for was even speculated to $100. With Clubhouse's global popularity and capital movement, Match Group acquired Hyper Connect and Facebook, the parent company of Azar and Hakuna, for $1.7 billion. In the domestic market, giants such as Ali and Xiaomi have also begun to lay out the audio social field. Luo Yonghao even said on Weibo: "I know that there are dozens of copying, and there is no rest during the Spring Festival." ”
But the development of audio social networking still has some uncertainty. As the celebrity aura of Clubhouse faded and the growth of user data encountered bottlenecks, the audio social software "Dialogue Bar" launched by Yingke was removed from the shelves 12 days after it was launched. Traffic is difficult to monetize, high server costs, content supervision is becoming stricter, marketing expenses are high, and if Huafang Group wants to continue to exert efforts to make audio social networking, these problems also need to be solved urgently.
In addition, the flower room is also laying out virtual entertainment, launching a virtual idol IP "left song". According to reports, Honey Branch Technology under Huafang can currently provide integration services for the whole process of virtual artists.
However, these new businesses are basically thunderous and rainy, and overseas businesses have been successful attempts in them. At present, holla and Monkey have successfully operated a number of international products such as HOLLA and Monkey in North America, Europe, the Far East, the Middle East and North Africa. And continue to explore and extend to Southeast Asia and the Middle East and North Africa region, launching audio and video-based social products. As of August 31, 2021, Huafang Group had more than 85.3 million registered users overseas, of which more than 26.7 million were newly registered from January to August 2021. In terms of registrations, the proportion of overseas users has reached 23%.
<h2>Entertainment live broadcast, lost the value of imagination</h2>
The live broadcast market seems to be a piece of fragrant food, but it is actually a difficult bone to gnaw.
In the field of game live broadcasting, after experiencing the crazy thousand-broadcast war, Panda and the whole people went bankrupt, Dragon Ball and Battle Flag collapsed, and in 2019, with Panda Mutual Entertainment withdrawing from the live broadcasting industry. Forced by various conditions such as policy supervision, traffic realization, and the disappearance of the outlet dividend, after this "thousand broadcast war", only the two giants of Huya and Douyu were finally left. In the field of pan-entertainment live broadcasting, Momo's hard-to-play decline in revenue continued to decline, Huanju Group lost more than 100 million yuan in a single quarter, and the share price of Yingke, the "first stock of Hong Kong stock live broadcasting", has fallen to HK$1.51, and its market value of HK$11 billion has shrunk by nearly 70%.
Looking back at the past, since the opening of the "first year of online live broadcasting" in 2016, first the PC live broadcast was separated by a group of users by the mobile terminal, and then the "robbery war" between platforms such as Yingke, YY, and Yi Live, which quickly piled up the operating costs of the platform; then the rise of short video platforms such as Douyin and Kuaishou, and then entered the field of live broadcasting.
In the fierce competition, the live broadcast category has also become more and more diversified, in addition to the original show live broadcast, game live broadcast, in recent years, e-commerce live broadcast, music live broadcast has also continued to rise. Internet giants are based on the horizontal penetration of the original content ecology, and live broadcasting is no longer a fixed category of products, but has become a means to increase user stickiness.
In addition, the serious homogenization of the live broadcast platform itself, the content ecology has been questioned, the lack of stickiness of users, and the excessive single monetization channel have also been balancing the development of pan-entertainment live broadcasting platforms led by Hua pepper and Yingke. Under the internal and external troubles, the growth has encountered bottlenecks, and users continue to be diverted by other platforms. Reflected in the data, in March 2021, the number of active users of Yingke was 10.7 million, and the number of peppercorns was 9.79 million. In stark contrast, the short video platform led by Douyin and Kuaishou has exceeded 100 million monthly active users, while the live broadcast + e-commerce + local life service model explored by the two short video platforms seems to be more favored by the capital market.
It is worth mentioning that the continuous tightening of content supervision has also accelerated the compliance challenges of live broadcasting platforms. In June this year, the Cyberspace Administration of China instructed the cyberspace administration of the territory to interview and dispose of 10 online live broadcasting platforms in accordance with the law, including sichuan pepper live broadcasting. Huafang Technology was also given an administrative penalty of 10,000 yuan by the Beijing Municipal Bureau of Culture and Tourism, which was due to the vulgar performance behavior of an anchor in the six-room website.
It is reported that the listing of Huafang Group has been preparing for listing since 2018, and the merger of Huazhuo and six rooms is also considered to be packaged listing, which can improve the overall valuation, but since the merger, Huafang Group has not been successfully listed for various reasons. This listing also reflects the determination of the actual controller Zhou Hongyi.
Whether capital values user stickiness or content ecology, Huafang Group, which is backed by 360, seems to have handed over a passing answer. But in the field of live broadcasting, which is crazy to create wealth, playing edge ball, eye-catching, cruel, and burning money, but there has never been a lack of controversy, Kuaishou and Douyin have already taken a share of the live e-commerce; the game live broadcast "double king" Tiger Tooth Fighting Fish finally failed to merge; Yingke tried to cut into Momo's territory with stranger social reverse; listing, not the end, what kind of capital story will Huafang Group tell in the post-competitive era?