Author: Belle

Interesting changes are taking place in the shape of the information society.

As of 2021, more than 80 per cent of the 1 billion Internet users in the Chinese market will open audio entertainment software once a day on average, using it for more than three hours a month.Specific to the online audio market, the number of monthly active users has stabilized at 268 million, showing a steady upward trend as a whole.

The characteristics of modern life can explain this phenomenon.

Fast-paced life, fragmented time, so that online audio can further expand the consumption content scene, in commuting, sleep, parent-child companionship and other scenarios of applicability, so that it has a stronger scene permeability.This is why online audio, a way of obtaining information, is now being favored by more and more people, and it has become a popular trend in the current market, and its commercial value has become increasingly prominent.

But then again, it's one thing to confirm the commercial value of the track, and it's a deeper job to identify quality players on the track. Real high-quality assets not only have the current excellent economic model, but also should meet the pursuit of time value of capital, in other words, have good growth expectations and have a deep moat.

Looking forward to the future in terms of its commercial potential, we need to further examine the development trend of the online audio market.For example, the deep integration with the publishing, film and television, and game industries; the increasingly prosperous ecology of creators; and the "cost reduction and efficiency" of the technology-driven business model, and so on.It is reflected in the full link from content production to cash, from the high product premium formed by high-quality content to the precise algorithm recommendation of marketing, as well as the continuous exploration of products and business models.

On March 29, 2021, Himalaya updated its prospectus on the Hong Kong Stock Exchange. With the help of the above judgment, the author will observe the fundamentals of the track head players Himalayas through the contents of the prospectus, and briefly talk about the growth and competitiveness of online audio track players.

1

Methodical content is the core of competitiveness

From the penetration rate of the online audio industry, we can see that the industry is still in a period of rapid growth.

At this stage, it means that the ability to get customers and user stickiness have become effective indicators to judge the competitiveness of user life cycle value (LTV). The rapid acquisition of traffic is an important task at this stage.

Before the launch of the Himalayas in 2013, Phoenix FM and Dragonfly FM had opened up the mobile audio market with TV programs and radio audio. According to the Himalayan prospectus, the company's average number of monthly active users (MAU) in 2021 was 268 million, an increase of 24.4% over the same period last year, with the average number of monthly active users on mobile reaching 116 million. Mobile users listen for an average of 144minutes a day, with a total listening time of 1.7441 trillion minutes, accounting for 68 per cent of the total listening time in the industry.

Himalaya has become the leading online audio platform in China in terms of average MAU and total mobile listening time in 2021, according to Zhenshi Consulting. According to the 2021 China Network Audiovisual Development Research report, the Himalayan user penetration rate reached 67.1%, occupying the first echelon position in the online audio industry.

In the online audio industry, content ecology and the number of users are the basis to support the development of enterprises.Therefore, the Himalayan's ability to get customers and the lead in user stickiness may be directly related to its target user coverage in terms of high-quality audio content.

The Himalaya aims to build an Internet connection and interaction platform for content creators and users.To meet the differentiated needs of users of all ages, different identities and occupations for content.

From the upstream point of view, around audio and content, the Himalayas connect the upstream and downstream industries and are building its "audio content ecosystem" to enhance users' willingness to use with the product premium brought by content quality.

Its content ecology includes audiobooks, pan-entertainment audio, podcasts, knowledge sharing and audio live streaming. Through the "PGC+PUGC+UGC" strategy, the Himalayas have achieved a full range of audio content coverage, from top professional generated content to long tail user generated content. At the same time, AIGC further enriches the content ecology and upgrades the audio content production mode, which will have more room for imagination in the Himalayas in the future. According to the prospectus, the number of Himalayan content creators exceeded 13.51 million in 2021. The total number of audio produced by the Himalayas is 340 million, while that of audio books is 4.9 million, covering a wide range of audio content, including education and training, history and humanities, parent-child relations, business and entertainment.

Himalayas establish and integrate comprehensive copyright content resources, ensure the upstream copyright advantage, and continue to produce high-quality audio content. The Himalayas have established strong and long-term partnerships with many online platforms and publishers. In 2021, the number of content rights acquired by the Himalayas increased to 57184.

UGC is also an important part of maintaining the pluralistic ecology of the Himalayas.

UGC content accounted for 45.3% of the total listening time of the platform in 2021. Himalayas encourage ordinary users to participate in creating and sharing audio by providing users with more convenient audio creation tools and expanding more audio categories (such as podcasts).

In August last year, the Himalayas launched the "Hima Podcast original incentive Program", which provides cash subsidies for original podcasts to help excellent podcasts grow. In fact, the Himalayas have also invested more in talent training.

From the downstream, the Himalayas have opened up a space for common growth with the channels through a wide range of channels of cooperation.Himalayan content distribution and terminal application scenarios are expanding day by day to meet the lifelong content needs of users with diversified and full scenes. People can participate in listening, reading aloud, consumption and other sound-related activities anytime and anywhere.

For example, through the layout of smart homes, smart speakers and car networking, Himalayas expand rich and convenient terminal application scenarios to further enhance platform content penetration and user stickiness.

Data show that Himalayas have reached cooperation with leading enterprises such as BABA, XIAOMI, Baidu, Inc., Tencent, Huawei and Midea, and more than 93% of the smart speakers are connected to Himalayan content. In the part of in-vehicle smart terminal, we have carried out in-depth cooperation with more than 95% automobile companies, such as Tesla, Inc., Porsche, Jaguar Land Rover, BMW, Audi and so on. TOP30's car brands have been connected to Himalayan audio services. According to the prospectus, the number of monthly active users of the Himalayan Internet of things and other open platforms reached 152 million in 2021, an increase of 35 per cent over the same period last year. Among them, the number of monthly active users of vehicle smart terminals and home smart terminals is 49 million.

Customer acquisition ability determines the increment that the business model can achieve; user stickiness represents the potential that stock flow can be realized stably in the long-term dimension. In short, it is possible to realize only when there is traffic.

Therefore, the strategy of "casting a wide net and catching more fish" is an important prerequisite for it to stand out in the growth period.

2

Valuable flow is the "ticket" of the next stage.

Although the industry as a whole is still in the stage of traffic acquisition, the traffic dividend in the Internet world has peaked, which means that the living space of each industry is basically determined, and it is only a matter of time before entering the stock competition. Therefore, activating the user and realizing the kinetic energy conversion from flow acquisition to dividend realization means getting a "ticket" to sail to the next stage.

As can be seen from the prospectus submitted on March 39, the revenue of Himalayan 2019FY~2021FY is about 2.68 billion yuan, 4.05 billion yuan and 5.86 billion yuan respectively, of which 2021FY increased by 43.7% year-on-year, showing a steady growth trend. In terms of total revenue, Himalayas are also in the first echelon, according to cautionary Consulting. In other wordsHimalayas have a more sophisticated business cash flow model that translates its customer acquisition capacity and user stickiness into cash flow.

By giving full play to its own platform effect, the Himalayas have established a communication bridge between consumers and creators of audio content, activated users' social behavior, enhanced their activity, and created a good community atmosphere.Taking advantage of the positive cycle between traffic growth and community atmosphere, Himalayas stimulate users' willingness to pay for services to meet high-quality spiritual and information needs, thus paving the way for cash channels such as traffic transformation, the establishment of a points system and a subscription service system.

The Himalayas have formed diversified realization channels.Paid subscription, advertising and live streaming have become the three pillars of the platform. With the healthy and sustainable development of content ecology, an audio ecological circle based on content production, anchor incubation and content distribution has been gradually formed, and the ecological layout of the whole chain is being formed.

Of the total revenue in Himalayas in 2021, subscription revenue was 2.99 billion yuan, up 49.0% from the same period last year; advertising revenue was 1.49 billion yuan, up 38.8% from the same period last year; and live broadcast revenue was 1 billion yuan, up 39.6% from the same period last year.

Paid subscription service is the basic part of the company's business.The ARPPU of the paid subscription business is also on the rise, thanks to the continuous introduction of high value-added innovative products by the paid single selling business and the widespread recognition of the paid membership model by more users. In terms of advertising, with the further integration of content and advertising in the future, brand and effect advertising revenue is expected to grow rapidly.

At the same time, the Himalayan live broadcast MAU has reached 5.5 million in 2021, an increase of 61.5% over 2020. The potential of the Himalayan live broadcast business has been recognized by the agency. Dongxing Securities believes that online audio users have certain follow-up effects and emotional needs for favorite anchors in the future.With the improvement of the number of bloggers, the quality of live broadcast content, and the social value of audio live broadcast, the number of monthly active users and payment rate of live broadcast will increase synchronously.

It is worth noting that the prospectus shows that the Himalayas have maintained a high gross profit margin and a continuous upward trend in gross profit margin, which has a strong growth potential, rising from 44.5% in 2019 to 54.0% in 2021. Himalayan gross profit margin is in the lead in the content platform and still shows a steady upward trend, as the scale of the business continues to expand, economies of scale will bring expected profits.

The value of unrealizable traffic will be greatly reduced.

When valuing growth enterprises, there is no escape from the most basic PEG model, and PE as the embodiment of current profitability is the most basic indicator.The profitability of an enterprise depends on whether it can continuously transform passenger flow into cash flow and promote the value of users' life cycle with traffic. As an incremental part of the economic model, user life cycle value plays a very important role in improving the model, and will ultimately determine the level of profitability.

Whether or not to generate value for users, how to generate value for users, related to the willingness of users to pay, is the key for the company to obtain cash flow.

3

A technological model is the kinetic energy of continuous evolution.

We can see from the prospectus that the Himalayas attach great importance to R & D investment.

In 2021, Himalayan R & D spending was 1.027 billion yuan, up 64.6 per cent from a year earlier, accounting for 17.5 per cent of total revenue in the same period, and technology and R & D personnel accounted for nearly 40 per cent.The continuous increase in investment in scientific research and technology has strengthened the infrastructure capacity and strengthened the construction of AI and big data, which is oriented to long-term sustainable value.

On the one hand, Himalayas use proprietary artificial intelligence and big data technology for in-depth learning of data, and establish artificial intelligence-based discovery and recommendation mechanisms and smart tagging systems to improve the accuracy and efficiency of content distribution and user experience.

On the other hand, proprietary technology can also help content creators better produce high-quality audio content. For example, the state-of-the-art text-to-speech (TTS) technology can effectively convert large amounts of text in news, articles, and books into audio.

In recent years, the Himalayan AI voice technology has made a lot of achievements.

In early 2022, two Himalayan voice technology achievements were included in the world's top academic conference "2022 IEEE International Conference on Audio, Voice and signal processing". Prior to this, the Himalayan Intelligent Voice Lab used TTS speech synthesis technology to release the "Shan Tian Fang voice reproduction" series of albums.

Based on the self-developed TTS framework, the Himalayas also collected the true voice of the head anchor "Master Xi Tao" to create AI anchor "Xi Xiao Tao", and worked with AI to create the first AI radio station from story creation to broadcast by AI. AI voice technology attracts media to accelerate the layout of audio content, and brand radio stations such as Tesla, Inc. have also released AI albums with the help of Himalayan AI language technology.

With the landing of AI technology, the moat of Himalaya's own enterprises is widening and deepening day by day, and it will continue to develop with the concept of long-term doctrine, and the future market has great potential and imagination space. It is worth noting that the prospectus reveals that the net funds raised by the Himalayan IPO will be mainly used to continue to expand and enhance the content provided and empower content creators, and to enhance the next-generation technology, AI and big data capabilities to further improve operational efficiency.In this sense, the increasing investment of R & D expenditure is the projection of the Himalayan long-term doctrine on the financial statements.

Microsoft Corp is only 18 months away from bankruptcy. "

This is Bill Gates' judgment on the rapid iteration of the technology industry, which is a requirement for Microsoft Corp to maintain growth.

With the intensification of competition in the industry, enterprises must maintain continuous growth and have the ability to follow the marginal changes of the market for rapid iteration. Growth is another basic index in the PEG model, so it also becomes the basis for judging the value of funds in choosing high-quality targets.

The growth of the online audio industry, like many other Internet industries, not only depends on customer acquisition, user stickiness and business model.From a long-term point of view, it is more necessary to increase the R & D investment, affecting the full link between content production and realization-- high product premium formed by high-quality content, accurate algorithm recommendation of marketing, continuous exploration of products and business models, and so on. Bring a more high-quality and immersive experience for consumers.

Therefore, for the growing online audio players, R & D investment is an effective way to build solid competition barriers, constantly expand the business territory to the new ecology, and increase the expectation of future cash flow.

4

The end.

The "mutual pity between China and China" in the past few months seems to have loosened; in terms of overall market valuations, the Hong Kong market is already a global valuation depression, and the premium of A-shares over H-shares is also high in the past 10 years; the policy of steady growth in the A-share market and tax cuts and fee cuts has brightened market expectations in 2022.

As Greater Cold fades and the bearish position is digested, people will revalue the market, and the panic that pervades the capital markets seems to have dissipated. We can see that the relevant targets have been shaken to build the bottom.

So focus on the fundamentals of the Himalayas again.

Step on the time when the penetration rate of the online audio industry acceleratesIn the short term, although the competition of the track in getting customers and improving user stickiness continues, in fact, the Himalayan polishing of the business model has begun to bear fruit, and some achievements have been made in revenue growth. In this process, the investment in R & D will support the long-term growth valuation premium of the company.

The stage has been set up, and the competition is bound to become increasingly fierce. The next question is whose ability circle and business model can ensure that they can run faster on the track.Can withstand the race against time, enterprises can win the recognition of the market.More optimistic about the long-term value of the Himalayas?