$ZIBUYU GROUP (810247.HK)$I'm continuing to fight for my dream of going public.

Recently, leading cross-border e-commerce companies submitted listing applications on the Hong Kong Stock Exchange without saying a word. In June 2021, the company applied for listing in Hong Kong for the first time. After two “invalidation” of its prospectus, it chose to continue to go public in Hong Kong for the third time.

According to Zidren's statement, his main products are clothing and shoes, which are mainly sold to users in the US and other countries and regions. Currently, it is one of the largest cross-border e-commerce companies in China.

According to Frost & Sullivan's data, in China's cross-border B2C e-commerce apparel and footwear market, the company ranked third among all platform sellers in 2021 with a GMV of about 2,386 billion yuan; among them, the company generated about 2,121 million yuan of GMV in North America, which ranked first among all platform sellers.

According to the prospectus, from 2019 to 2021, the company's revenue was 1,429 billion yuan, 1,888 million yuan, and 2,347 million yuan respectively, while net profit was 81 million yuan, 114 million yuan, and 201 million yuan respectively. However, by the first half of 2022, its revenue increased 16.1% year on year to 1,278 million yuan, but net profit fell 46.3% year on year to 61 million yuan.

As the founder of the company, 34-year-old Hua Bingru started running an online store as early as 2008 when she was a sophomore. With the dream of a “Chinese version of Zara”, when he worked hard on his way to starting a business, in addition to achieving success in his career, he also reaped his own love.

Currently, Hua Bingru and her spouse are the controlling shareholders, holding a total of 55.47% of the shares. Among them, Huabingru holds 50.14% of the shares. This also means that once the company is successfully listed, he will also gain freedom of wealth.

However, due to factors such as policies and the epidemic, it goes without saying that the total number of orders and active users has already declined. Coupled with the heavy reliance on Amazon now, whether the third impact of the listing can be successfully realized is still a big question mark.

Heavy dependency on Amazon

Net profit for the first half of the year was almost lower than that of a year

As a cross-border e-commerce company, it goes without saying that it sells clothing, footwear and other products mainly designed by itself to users in more than 80% of countries and regions around the world, including the United States, Germany, and France, through channels such as Amazon, Wish, eBay, AliExpress, and its own websites.

In actual operation, the company will purchase products produced according to its design from suppliers, and then deliver products to customers who have already placed orders through fulfillment services provided by third party logistics service providers or third party e-commerce platforms.

After ten years of development, Zibu has become the leading cross-border e-commerce company in China. According to Frost & Sullivan's data, in China's cross-border B2C e-commerce apparel and footwear market, the company ranked third among all platform sellers in 2021 with a GMV of about 2,386 million yuan, accounting for 0.4% of the market share. Among them, the company generated about 2,121 million yuan of GMV in North America, which ranked first among all platform sellers, accounting for 0.7% of the market share.

To put it bluntly: we are one of the largest cross-border e-commerce companies in China.

However, the company does have its own ambition. According to data, Zibu has designed and sold more than 6,400 best-selling products, and many popular products sell more than 2,000 pieces a year; it has cultivated more than 300 brands, including 87 popular brands, with annual sales of each brand exceeding 10 million yuan.

Looking through the prospectus, it can be seen that from 2019 to 2021, the company's revenue was 1,429 billion yuan, 1,888 million yuan, and 2,347 million yuan respectively, while net profit was 81 million yuan, 114 million yuan, and 201 million yuan respectively. However, by the first half of 2022, its revenue increased 16.1% year on year to 1,278 million yuan, but net profit fell 46.3% year on year to 61 million yuan.

There was a slight increase in revenue and a sharp drop in profits, and he gave his own explanation without saying a word.

In terms of revenue, one reason is the increase in sales on Amazon, which increased 83.9% year-on-year to 1.157 billion yuan in the first half of 2022; another reason is that the average prices of clothing and footwear, which are the main products, increased 37.4% and 26.2% year-on-year respectively in the first half of 2022, reaching 159 yuan and 284 yuan.

As for net profit, the company blamed high inflation in the US, which reduced customer desire to spend, increased prices for Amazon advertising services, the main sales channel, and higher sales and transportation costs. Among them, the money spent on sales and distribution alone reached 838 million yuan in the first half of 2022, an increase of 31.7% over the previous year.

We have put a lot of effort into improving our performance without saying a word. In addition to integrating the supply chain by investing in factories, they have also tried overseas live streaming to bring goods. One of the most important strategies is to shift the focus of third party sales channels to Amazon.

Previously, the company had over 75% of its revenue, which was obtained by selling products through the two main sales channels of Amazon and Wish. In 2020, its revenue ratio through Wish was 12% higher than Amazon's, but the following year, the percentage of revenue obtained through Amazon was 37% higher than Wish's. It's even more obvious in the first half of 2022. Amazon has become its most important third party sales channel, and sales of products through this channel account for 90.6% of revenue.

This is not difficult to understand. Previously, Wish's low price, low threshold, and other labels helped make big sales, but when the company began to strengthen its brand and faced pressure on performance, Amazon would be a relatively better helper.

Embrace the “Chinese version of Zara” dream

Facing a tortuous listing path

Zibu Zhi was founded in 2011, but the company's founder, Hua Bingru, started running an online store as early as 2008 when she was a sophomore.

After graduation, Hua Bingru went to Hangzhou and founded her company without saying a word. By selling women's clothing, the stores it operates have defeated many Tmall women's clothing merchants in a year, and their weekly trading volume has entered the top ten.

Feeling the fierce competition in the domestic market and the popularity of cross-border e-commerce caused by favorable policies and markets, Hua Bingru decided to go overseas to dig for gold.

In 2014, they registered their first online store on Amazon and completely transformed their business into a cross-border e-commerce business. The following year, Wish also had their online store. In addition to entering third-party e-commerce platforms, they also started setting up their own websites in 2018.

With the rapid development of the business, listing the company has also become one of Hua Bingru's goals. It's just that the path to listing is probably more tortuous than he imagined.

As early as 2017, I hired an intermediary to guide the listing without saying a word, and also set up an employee stock ownership platform. Unfortunately, it didn't work out in the end. However, Hua Bingru did not give up. At the time, he also had a “Chinese version of Zara” dream and chose to apply for listing on the Hong Kong Stock Exchange 4 years later.

It goes without saying that when they first applied for listing in Hong Kong in June 2021, they were in the midst of a wave of Amazon blockades, and the online store accounts of many domestic cross-border e-commerce companies were banned. Furthermore, cross-border e-commerce players such as Zhiou Technology, Sanform Co., Ltd., and Dunhuang.com chose to apply for listing at almost the same time, which also means that similar companies will face more scrutiny.

But it's not OK not to stick to the bullet and apply for listing, because I can't wait. As can be seen from observational data, it goes without saying that the number of orders and total active users in 2021 both declined to varying degrees year over year. The number of orders in 2021 was 17.044 million, down 19.76% year on year, while total active users were 5.182 million, down 54.73% year on year.

Along with the company's listing path, and for better development, Hua Bingru first introduced external capital to Ningbo Zhongyao in March 2018, and this limited partnership was set up only to keep investors speechless. The main shareholders behind it were individual investors.

After another 3 years of development, on the eve of their first application for listing in Hong Kong, they chose to successively introduce Kangxi Investment and Aloe Tower, two external investors formed only to invest in the company, and eventually changed their valuation to 516 million US dollars.

Among them, Kangxi Investment is managed by Zhang Sijian, who was the managing director of Sequoia China.

While working hard for her career, Hua Bingru also reaped her own love. According to data, Jiahe International used to be Ziwu's fourth largest supplier, and the company used to be controlled by his current spouse's relatives until 2021 when it was sold to a former employee of Ziwu.

Currently, Hua Bingru and her spouse are the controlling shareholders, holding a total of 55.47% of the shares. Among them, Huabingru holds 50.14% of the shares. This also means that once the company is successfully listed, the 34-year-old will also have freedom of wealth.

It's hard to find gold in the trillion dollar market

There are many challenges to be solved

It's just that whether the company can go public smoothly, in addition to passing through the Hong Kong Stock Exchange, it is also necessary to consider the impact of the general environment. After all, if capital and the market don't buy it, it's all for nothing.

In fact, the B2C e-commerce market for cross-border exports in China is huge, and the momentum is developing quite well.

According to Frost & Sullivan, the overall market size of China's cross-border B2C e-commerce market is 2738.4 billion yuan in 2021, and is expected to reach 554.9 billion yuan in 2026. If you look at the size of the apparel and footwear market that goes without saying a word, 2021 is 75.3 billion yuan, and is expected to increase to 1827.6 billion yuan in 2026.

The cake looked big, but there were quite a few players inside. In addition to the companies mentioned above that are still impacting listed companies, SHEIN is also an opponent that cannot be circumvented.

As a fast fashion giant, SHEIN's focus is on cross-border women's clothing. It was previously reported that it is valued at about 100 billion US dollars and will be listed in the US as soon as 2024. And behind the company, investors are even more luxurious. According to Tianyan Research, SHEIN's shareholders include Sequoia China, Tiger Global Fund, IDG Capital, and Shunwei Capital.

Furthermore, the Internet giants have also made arrangements. For example, iYouOou, which is owned by ByteDance, Temu, which is owned by Pinduoduo, etc.

Although the B2C e-commerce apparel and footwear market for cross-border exports from China is highly fragmented, and new players entering the market may not have much direct impact in the short term, after competition intensifies, players who are not strong will probably feel bad.

Moreover, uncontrollable factors are also gradually increasing. Leaving aside macro-level aspects such as policies and the epidemic, the mere bundling of Amazon will make Zi speechless and very passive.

The company also admits that Amazon can terminate the retail business relationship through the Seller Central Program at any time by delivering a notice, and can also influence the seller by amending the terms of the agreement, and can even close the seller's account for reasons such as the way the seller operates and manages the seller's online store.

This impact is already being felt. After Amazon introduced a more flexible product return policy in August 2021, it goes without saying that the return rate in 2021 increased 2.7% year over year to 19.8%. By the first half of 2022, it had reached an astonishing 25.5%.

The worse news is that weak performance has led to a gradual decline in unspeakable cash and cash equivalents. As of the first half of 2022, the company's cash and cash equivalents were $83 million, a year-on-year decrease of 27.4%.

Without saying a word, I realized that I was too dependent on Amazon and the US market. In addition to seeking cooperation with other overseas third-party e-commerce platforms such as Wayfair and Lotte, I would also vigorously expand the markets in Southeast Asia and Europe.

Furthermore, Zibo is also preparing to use the funds raised from the listing to establish a large-scale independent website to further enhance brand awareness and customer loyalty. Whether this goal can be successfully achieved depends on whether the company can successfully go public in Hong Kong and be recognized by a sufficient number of investors.