Written by |Zhang Yu.
Edit |Yang Bocheng.
Title Picture | ic photo
Nearly half a year has passed since Fun Pill Group, the parent company of the interest social platform TT Voice, submitted its prospectus to the Hong Kong Stock Exchange on June 19, 2023, and the current status of Fun Pill Group's application for listing on the Hong Kong Stock Exchange is still "processing". HKEX explains that "pending" means any listing or authorisation application that is still valid, including if the return or rejection of the application is still pending.
According to the prospectus, Qumaru Group plans to raise $200 million to $300 million, which is intended to be used to promote the sustainable and high-quality user base expansion of the TT voice platform in the next three years, further attract the user community through diversified product portfolios, and enhance technical capabilities to improve user experience and strengthen monetization capabilities.
Source: Fun Pill Group prospectus.
In terms of revenue in 2022, Qumaru Group is the largest mobile voice social networking platform in China and the largest social networking platform for mobile game users in China. As an industry leader, Qumaru Group is favored by capital, Tianyancha shows that it has completed five rounds of financing before submitting the prospectus, and the cumulative amount of financing disclosed has exceeded 1100 million US dollars, the investor lineup includes Xinghui Interactive Entertainment, Jingwei Venture Capital, Tencent Investment and many other star investment institutions, after the completion of the last round of financing, the valuation of Qumaru Group has exceeded 1 billion US dollars.
In fact, Qumaru Group submitted a prospectus to the Hong Kong Stock Exchange in October 2021, but finally "failed" because it failed to pass the hearing for more than 6 months.
Submitting the prospectus again, Qumaru Group is obviously prepared, but at the same time, new problems have also followed, such as the rapid revenue and heavy reliance on value-added service business, the audio entertainment service business has lowered the gross profit margin, the serious loss of monthly active users, and the encounter with strong supervision, etc., are all obstacles for Qumaru Group in the process of impacting the capital market.
The gross profit margin fell sharply, and the monthly active users lost
At present, Fun Pill Group has three major business segments: TT Voice, TT E-sports, and TT Games, of which TT Voice is the fist product of Fun Pill Group, and is the official designated voice platform for the Peace Elite Professional League (PEL), the Honor of Kings Professional League (KPL), the League of Legends Professional League (LPL) and the PUBG Champions League (PCL).
According to the prospectus, the profit model of Qumaru Group is mainly realized by users who consume virtual items on TT voice when interacting with other users and anchors. Purchase and consumption scenarios are seamlessly integrated into the platform's diverse social networking and entertainment features and functions, allowing users to purchase a selection of virtual items and give them as gifts to others to express themselves and strengthen social relationships with the friends they make on the platform.
Source: Fun Pill Group prospectus.
From 2020 to 2022, the total revenue of Qumaru Group was 149.3 billion yuan, 263.1 billion and 340.2 billion yuan;The net profit was -15.2 billion yuan, -249.2 billion and 51.2 billion yuan;Adjusted net income was 15.1 billion yuan, 10.9 billion and 66.6 billion yuan.
According to the business composition, the revenue of Fun Pill Group** can be divided into three parts: value-added service business, audio entertainment service business, games and other businesses, value-added service business includes platform users in multi-user interactive scenarios to consume virtual gifts, develop membership subscription services, etc., while audio entertainment service business is mainly users in various audio entertainment scenarios hosted by anchors to send virtual gifts to anchors.
According to the prospectus, among the three major businesses, the value-added service business is the largest revenue-generating business, contributing more than seventy percent of the revenue, and from 2020 to 2022, the value-added service business revenue is 135.7 billion yuan, 203.6 billion and 254.3 billion yuan, accounting for the proportion of total revenue. 4% and 748%。During the same period, the revenue of the audio entertainment service business was 636210,000 yuan, 52.1 billion yuan and 80.4 billion yuan, accounting for the proportion of total revenue. 8% and 236%。
Source: Fun Pill Group prospectus.
It is not difficult to see that at the performance level, Qumaru Group has achieved a turnaround in 2022, and gradually got rid of the risk brought by a relatively large proportion of a single business, and the revenue structure tends to be reasonable, but it cannot be ignored that the key to the turnaround of Qumaru Group's performance is the sharp decline in sales and marketing expenses.
In 2022, the sales and marketing expenses of Qumaru Group were 54.8 billion yuan, not only compared to 102.3 billion yuan has shrunk by more than half of the total, even lower than the 600 million yuan in the same period in 2020. In the case of a substantial cost reduction, it solves the urgent need of fun pills.
It is worth mentioning that after achieving profitability through cost reduction, the gross profit margin of Qumaru Group has continued to decline, which means that its profitability has decreased.
From 2020 to 2022, the gross profit margin of Qumaru Group were: 2%, a decline of 108 percentage points. In this regard, Qumaru Group explained in the prospectus that it is mainly due to the growth of audio entertainment services, and the proportion of revenue sharing between anchors and guilds in audio entertainment services is higher than that of value-added services.
Source: Fun Pill Group prospectus.
In addition, Qumaru Group is also facing a lot of challenges in terms of user scale.
From 2020 to 2022, the average number of monthly active users of the group was 12.3 million, 16.8 million and 13.8 million, respectively, of which the average number of monthly active users in 2022 decreased by 3 million year-on-year, which was mainly due to the suspension of TT voice applications from February 2022 to January 2023**, and the shift from user acquisition through promotion and advertising to enhancing user connection and user engagement.
Source: Fun Pill Group prospectus.
During the same period, the average monthly paying users of the Fun Pill Group were 64390,000, 96560,000 and 100030,000, the payment rates were. 7% and 72%, showing an overall growth trend, but if the timeline is extended, in 2018 and 2019, its payment rate is 73% and 71%, the payment rate in 2022 is not even as high as in 2018.
There are still concerns under the good performance
Despite the turnaround, the group still faces many hidden concerns.
One is the scale of users. If the Fun Pill Group's user base decreases or ceases to grow, the activity or interest of users decreases, or the quality and quantity of the user base deteriorates, it is possible that the Users' spending on the Platform will decrease, and the Fun Pill Group will not be able to earn income from the consumption of Virtual Items given to each other by the Users, and its business, financial condition and results of operations will be materially adversely affected.
The second is the cost of operation. The Qumaru Group's performance is largely dependent on streamers and unions, and over the past few years, the cost of revenue sharing fees with streamers has increased for companies that provide audio entertainment services. From 2020 to 2022, the revenue share fee recorded by Qumaru Group was 43.3 billion yuan, 92.2 billion and 12$9.7 billion, but if the Fun Pill Group is unable to maintain revenue sharing fees of this size, or loses the opportunity to retain anchors and the union, and the remuneration paid by the Fun Pill Group to the anchors, it may significantly increase its operating costs and have a material adverse effect on its financial condition and operating results.
The third is regulatory pressure. In August 2019, the Cyberspace Administration of China (CAC) notified the app store to suspend TT voice**, and it was re-launched after 3 months of rectificationIn July 2021, TT Voice was named and notified by the Ministry of Industry and Information Technology for "illegal mobile phone personal information";In February 2022, the Cyberspace Administration of China (CAC) notified Apple and Android App Stores to suspend TT voice applications, mainly because TT voice applications were considered by relevant authorities to have strong attributes and social mobilization capabilities, and had not completed and passed the required security assessments by relevant authorities.
In addition, according to the prospectus, in the past three years, Qumaru Group has received a total of about 4,300 refund requests for suspected underage consumption activities, of which 59 have resulted in the company being sued, and Qumaru Group has refunded 3.9 million yuan, 6.2 million yuan and 7.3 million yuan respectively.
Fourth, overseas business. Due to the differences in legal and market conditions in each country, in some cases, compliance with the laws and regulations of one country may violate the laws and regulations of another country, resulting in increased costs and exposure to various risks, such as control of content by local authorities, uncertainties and infringement of intellectual property rights, complexity of complying with foreign laws and regulations, and cultural differences, so that the business model of the Fun Pill Group may not be adapted to local market conditions. Failure to comply with other foreign laws, rules and regulations could have a material adverse effect on the Fun Pill Group's business, results of operations and attempts at global growth.
It has been nearly half a year since Qumaru submitted the prospectus, but it has not been able to knock on the door of the capital market, which may be closely related to the many hidden worries it faces.
The transformation is difficult, and it is difficult to achieve results in the short term
Perhaps realizing that it is difficult to continue to grow in performance, in the past two years, Qumaru Group has begun to focus on the e-sports business, and has successively invested in the e-sports market, such as first acquiring the old club of "Honor of Kings" and acquiring the XQ e-sports club King Glory Branch, and then acquiring the League of Legends DMO team and changing its name to TT team, officially entering the League of Legends professional league. In this regard, Qumaru Group stated in the prospectus that in order to enhance the brand and enhance the value proposition to users, we are engaged in other businesses such as e-sports team operation, which also provides us with considerable monetization and marketing opportunities.
However, the development of the e-sports business, which is seen as the driving force for business diversification by the Fun Pill Group, is uncertain. From 2020 to 2022, the gross losses of the e-sports team in the same period were 14.72 million yuan, 13.21 million yuan and 43.08 million yuan respectively, showing a growing trend.
At the same time, the Fun Pill Group paid 02.6 billion yuan, 16.1 billion yuan and 0400 million yuan, with a total investment of more than 2 in the e-sports industry2.7 billion yuan. In 2022, Qumaru Group also spent 38.41 million yuan on e-sports sponsorship.
Although the ambition of the Fun Pill Group to lay out the e-sports business is not small, it does not contribute much to the total revenue, and even drags down the performance. According to the prospectus, the e-sports business is classified as games and other businesses, and from 2020 to 2022, the business revenue will be 72.67 million yuan, 73.78 million yuan and 55.59 million yuan respectively, accounting for less than 5% of the total revenue and declining year by year, in addition, the gross profit margin of the business has increased from 21 in 20208% fell to -52 in 20221%, which dragged down the overall gross profit margin.
It can be seen that the transformation of Qumaru Group is facing an extremely difficult situation, and for Qumaru Group, even if it can be successfully listed, how to tell a good capital story is still a difficult problem.