[Reprint] High profit growth is in line with expectations. Yunxiang Technology creates a SaaS service ecosystem platform for short video marketing

The phrase “where the user is, where marketing is” is the basic logic of any marketing theory.

In the Internet age, this phrase has changed to “where traffic is, where is marketing.”

In recent years, short videos have shown explosive growth, driven by the trend of fragmentation of entertainment. It has been proven that short videos have been the biggest trend on the Chinese Internet in the past few years. Currently, the industry is still in a dividend period. Whether in terms of the number of users or the length of time users, the characteristics of short videos gradually becoming a basic application in the Internet industry are becoming more and more obvious.

According to iResearch's report, China has the largest number of short video users in the world. The Chinese short video platform DAU is expected to reach 900 million in 2025, and the average amount of time each daily active user spends on the platform is also expected to increase to 110.2 minutes in 2025.

Based on the rapid fermentation and widespread dissemination of high-quality content, and many favorable factors such as huge traffic focus, industry dividend periods, and a period where the industry pattern has stabilized, short video platforms have not only increasingly become the best promotion position for brand marketing, but also bring huge business opportunities to the emerging industry segment of short video marketing services.

(Image source: Yunxiang Technology's prospectus)

Short video marketing has various forms of online advertising, including short video streaming marketing, event marketing, and product implantation marketing. It is an important part of the entire online marketing market. Judging from the speed of development, it has become an important driving force driving the growth of the entire online marketing market in recent years. iResearch predicts that the compound annual growth rate of the short video marketing market is expected to reach 35.6% in 2020-2024, while the revenue share of short video marketing in the overall online marketing market has an opportunity to further increase from 15.9% expected in 2019 to 34.5% in 2024.

The huge growth potential of the racetrack has also brought continuous growth impetus to leading companies in the industry.

On March 31, Yunxiang Technology, known as the “first stock of short video marketing” in the Hong Kong stock market, released its first full-year financial results since listing.

Overall, the company was able to maintain normal steady growth in 2020, when the epidemic occurred, and fundamentals continued to increase. After the successful listing, in addition to raising a large amount of capital to support long-term development, the company's balance ratio also declined rapidly, and its resilience to risks was greatly improved.

According to the announcement, in 2020, Yunxiang Technology recorded revenue of 2,577 billion yuan (same unit), up 11.41% year on year; gross profit of 203 million yuan, up 27.22% year on year; profit of 104 million yuan, up 42.07% year on year; adjusted net profit after deducting main listing expenses of 146 million yuan, up 66.08% year on year. In 2020, Yunxiang Technology's revenue, gross profit, and profit growth showed the characteristics of gradual strengthening.

(Image Source: Company Announcement)

Among them, gross margin increased further from 6.89% in 2019 to 7.86% in 2020. Judging from the attribution analysis, the increase in gross margin contributed more to the company's gross profit growth than to its revenue growth. Furthermore, the growth rate of the company's net profit/adjusted net profit during the year was in line with market expectations, and the compound annual growth rate of the company's net profit in 2017-2020 remained above 40%. Therefore, the company's net profit growth rate in 2020 is actually a “posture” that is basically consistent with its historical high growth. However, the adjusted net profit growth rate, which mainly excludes listing expenses, more clearly shows “signs” of accelerated profits. This emerging “minor trend” can be further verified in the 2021 financial results.

Further looking at Yunxiang Technology's balance sheet, it can be seen that the company's cash and cash equivalents, plus the total amount of restricted cash, was about 1,021 billion yuan, an increase of 2830% over 2019 (mainly due to public fund-raising), accounting for about 67.84% of the company's net assets. The company's balance ratio dropped sharply from 56% in 2019 to 26% in 2020. In terms of other financial indicators, the current ratio was about 3.74 times, a significant improvement of 123% over 2019. The above situation comprehensively reflects that Yunxiang Technology's balance sheet was further solidified and consolidated in 2020, greatly enhancing its ability to withstand risks and overcome cycles.

In terms of operations, if revenue is divided according to vertical industries (figure below), it can be found that the company's revenue sources became more balanced. Among them, the revenue recorded in the online game industry fell to 30.5% from 60% in 2019, while the revenue share of the three vertical industries of e-commerce, advertising, culture and media increased to 20.1%, 16.2%, and 7.0% in 2020. Clearly, the share of e-commerce and advertising increased the most.

Overall, the revenue source structure in 2020 has been further optimized to reduce dependency on a single industry, thus reducing operating risk. The revenue share in the three vertical industries of e-commerce, advertising, culture and media has increased rapidly, which can reflect the shift in the company's focus or focus on the industry, indicating that its underlying capabilities centered on traffic control and performance dominance have also been focused and strengthened. The strengthening of these core competencies may be the internal reason why Yunxiang Technology's profitability continued to increase in 2020.

(Image Source: Company Announcement)

Furthermore, from the company's main operating data, we can further appreciate the trend of improving the company's underlying core capabilities, which focus on traffic control and performance dominance capabilities. The share of hits increased from 2.50% in 2019 to 3.02% in 2020, with an improvement of about 21%. The cumulative number of likes received during the period also increased by about 22% year-on-year, which fully reflects the continuous strengthening of its effectiveness in serving customers.

(Image Source: Company Announcement)

In its first performance announcement, Yunxiang Technology's management mentioned that it was keenly aware that the company's short video commercialization business is a dual engine driven job. If divided by ability, one gripper is the ability to produce short videos on a large scale, and the other is the ability to integrate data, analyze people, and accurately locate people.

Focusing on these two grippers, Yunxiang Technology has created two major platforms. One is the company's co-production video trading platform. In addition to the company's video production team composed of 120 full-time employees, the platform also has more than 200 video producers. The co-production video trading platform provides the company and partners with a large number of well-produced, data-driven, and original videos that meet the delivery requirements of major short video platforms. Another platform system is Yunxiang Technology's programmatic advertising trading platform, Lianshan System, which uses programmatic real-time bidding to be presented on mobile devices for accurate user groups through the main short video platform. Currently, Lianshan's programmatic trading and video content trading systems have become the core systems of Yunxiang Technology. This means that Yunxiang Technology's two-wheel drive growth path of video content and big data has been presented more and more clearly in front of investors.

During the period, Yunxiang Technology further integrated the video content trading platform it operates, and successfully connected the Lianshan programmatic trading platform with its Lianshan programmatic trading platform. In other words, a short video advertisement delivered online by the video supplier on the Lianshan video trading platform can immediately be quickly presented to users of the short video platform connected to the company's platform through the Lianshan Programmatic Trading System, and realized the function of rapid settlement with the video supplier.

The connection between the two core system platforms indicates that Yunxiang Technology has successfully taken the lead in building a full-cycle service model for the entire short video industry chain in the industry, creating a short video marketing SaaS service ecosystem with core competitiveness, high efficiency, immediate, and technology-enabled.

Overall, the first “report card” handed over by Yunxiang Technology once again confirms one of the judgments put forward by the author before listing, that is, the company's “moat” has always deepened. If we start from the first financial report, we can at least reflect this situation from three different perspectives.

According to the announcement, the company's R&D expenditure increased by about 34% year on year in 2020, and the growth rate of R&D expenditure was far higher than the company's revenue growth rate, proving that the company attaches importance to technology-leading requirements and technical refinement, which should be prioritized over simple revenue scale expansion. It can be seen that Yunxiang Technology is pursuing qualitative growth even more.
As mentioned above, Yunxiang Technology has successfully connected to its two core internal system platforms — one is a video content trading platform and the other is Lianshan programmatic trading platform. In addition to building a full-cycle service model for the entire short video industry chain, it has also created a unique short video marketing SaaS service ecosystem platform. Currently, the company has clearly established a two-wheel drive development path for video content and big data. As we all know, if we want to continue to gain a leading edge in big data, we must use AI technology. If the ecosystem platform created by the company is to achieve technological empowerment, it must walk on the two legs of “big data+AI”. Therefore, it is “imperative” for the company to further strengthen its AI technology or capabilities.

According to the announcement, Yunxiang Technology and Shangtang Technology, a leading domestic AI technology company, are cooperating closely in the engineering research and development of AI technology, and some AI video processing technology, such as automatic video subtitle generation and editing tools and video green screen replacement technology, have invested in the production process of original video content, greatly improving production efficiency.

Furthermore, on the basis of the initial construction of an ecological platform, Yunxiang Technology also proposed the broadening and integration of core capabilities through mergers and acquisitions. There is a trend of continuous strengthening of the company's future platform-based technology capabilities and utility.

According to the announcement, Yunxiang Technology's direct customers increased from 669 in 2019 to 861 in 2020, with an annual growth rate of 28.70%. As of December 31, 2020, Yunxiang Technology has provided direct or indirect services to more than 4,660 advertisers in 188 vertical industry segments. The company has a large number of customers and rich service experience across industries. This supports the foundation for the continuous construction of diversified, multi-industry service systems. Huge customer data and historical experience provide massive learning and analysis opportunities for its big data and programmatic systems, thus making it easier for the company to stand out from the competition with peers. This is the logic behind the continuous consolidation and acceleration of the company's position in the industry.

According to iResearch, in 2019, based on the total bill generated by short video ads, Yunxiang Technology ranked among the top three in China and became the leading online marketing solution provider in China.

We know that the current short video marketing market is not highly concentrated, is still in a fragmented pattern, and competition is fierce. In this context, leading players with leading positions in the industry, such as Yunxiang Technology, can continue to benefit from the rapid development of the industry and the continuous increase in concentration.

From some details in this financial announcement, we have also captured the trajectory of the company's “circle of competence” and “ecosystem” continuing to expand.
For example, in terms of ability, with the support of learning ability and basic comprehensive coverage of major short video platforms in the market, Yunxiang Technology said it is entering the field of live streaming services. From short videos to live streaming services, Yunxiang Technology clearly grasps the “concentration place” of head traffic and head monetization methods within mainstream short video platforms, because, simply comparing efficiency, live e-commerce will be more efficient at monetizing than short video delivery. The appeal of live e-commerce to advertisers and product suppliers is also significantly higher than the short video delivery model, and judging from current trends, the boundary between the two is becoming more and more Blurred, and the degree of fusion is getting more and more Gao. What is foreseeable is that Yunxiang Technology's accumulated advantages in short videos may smoothly “migrate” to the field of live streaming services. Conversely, the company's entry into the field of live streaming services can also further upgrade and iterate the company's “big data+AI” capabilities.

As far as it is concerned, the company has helped some well-known international and domestic brands achieve live streaming sales revenue and realized its own revenue. Yunxiang Technology has gradually begun to develop its own style as a brand operator and service provider in the field of short video and live streaming, and is becoming wider and more stable, and the development logic or idea of the internationalization of the company's business in the future will also gradually be tested.

It is worth mentioning that in terms of ecosystem construction, Yunxiang Technology plans to transform and deploy the company's programmatic trading platform in the direction of public ownership, which means that the company will gradually open up platform services to partners within its ecosystem, including agents and service providers. This plan will accelerate the company's upgrade and transformation from a technology and creative service provider to an ecological platform service provider, and ultimately achieve technological empowerment for partners.

In summary, Yunxiang Technology has finally strengthened its ability to create value through a series of measures and layouts to deepen the “moat”. This may have helped the company have a chance to compete in long-distance racing on superior tracks. It must be said that this fully complies with the “good track, good company” evaluation criteria.

Finally, the company's potential brand operation and overall marketing solution capabilities are also gradually being clarified. The two-wheel drive model for video content and big data (and AI) has been established, and the prototype of an ecosystem platform that can achieve technological empowerment is beginning to emerge. Whether from character positioning, to capacity building, or the platformization trend required to finally achieve technological empowerment, all of this shows that Yunxiang Technology's lofty future and the sea of stars are only in its infancy. The exciting part of the climax is far from here, so we can wait and see.