Due to the influences of fierce market competition, reduced enterprise investment, and difficulty in making profits, SaaS companies have performed very poorly in capital markets in recent years. Taking China Youzan (08083), a representative SaaS symbol, as an example, its stock prices fell by 76.62%, 63.7%, and 26.53% from 2021 to 2023 respectively. After three consecutive years of decline, China Youzan's stock prices dropped by more than 40% in 2024, and its market cap has shrunk by more than 98% compared to its peak period.
In the context of the capital market's cooling attitude towards SaaS companies, a newly listed SaaS company has shocked the market with its remarkable growth.
China's leading marketing and sales SaaS company, MaiFuShi(02556), officially listed on the main board of the Hong Kong Stock Exchange on May 16th this year at an issue price of HK$43.6. Its stock rose more than 18% on the first day of listing and continued to rise to a high of HK$88 on June 12th.
This means that MaiFuShi's stock price has doubled in just 19 trading days. What makes the newcomer MaiFuShi so impressive? Can the company's fundamentals support its current market cap of nearly HK$20 billion? These questions can be answered through the company's prospectus and the size of its IPO, which reveals some hidden secrets.
The main reasons for the small market capitalization or the significant rise in stock prices are:
MaiFuShi mainly provides customers with a set of marketing and sales SaaS solutions and accurate marketing services. In 2023, revenue from SaaS solutions accounted for 57% and revenue from accurate marketing services accounted for 43%.
To summarize, there are several business highlights that support MaiFuShi's continued rise in stock prices:
Firstly, the number of users and the average contract value (expenditure) per user of its two major businesses have shown a clear upward trend.
From 2021 to 2023, the number of users for MaiFuShi's SaaS business reached 24,127, 23,647, and 25,495 respectively (the decline in 2022 was due to the impact of the epidemic), with an average contract value per user of 45,026 yuan, 41,584 yuan, and 51,238 yuan respectively.
In terms of accurate marketing services, the number of customers from 2021 to 2023 was 845, 998, and 1042 respectively, with an average expenditure per advertising customer of 5.5 million yuan, 5.9 million yuan, and 6.1 million yuan, showing a trend of "quantitative and price rise".
Secondly, MaiFuShi's SaaS business has a relatively high gross margin.
From 2021 to 2023, MaiFuShi's gross margins for its SaaS business were 90.1%, 89.2%, and 87.7%, respectively, which were higher than those of most SaaS companies. This is mainly because MaiFuShi has achieved large-scale commercial coverage of SaaS services for marketing and sales, which is a single operational link.
As of December 31, 2023, MaiFuShi provided 202 functional modules through Marketingforce platform, covering the entire marketing and sales process from content generation, distribution, data analysis, promotion, to overall strategy management. These functional modules are ready-made products that do not need to be developed again, so customers can directly choose them, which greatly improves the gross margin level.
Thirdly, revenues continue to grow and adjusted net losses have narrowed significantly in 2023.
Thanks to the rising number of users and the average contract value (expenditure) per user of its two major businesses, MaiFuShi's revenue has also continued to grow. From 2021 to 2023, MaiFuShi's revenue was 877 million yuan, 1.143 billion yuan, and 1.23 billion yuan, respectively.
Although revenues have continued to grow, MaiFuShi has not escaped the biggest criticism of the capital market towards SaaS companies - it is difficult to make profits. MaiFuShi has also not achieved profitability. Its adjusted net losses in 2021 and 2022 were RMB 130 million and RMB 132 million, respectively. However, its adjusted net loss in 2023 has significantly narrowed to RMB 27.736 million, which is equivalent to indicating its expected profitability to the market.
However, a closer analysis of the significant narrowing of losses in 2023 reveals that this is mainly due to the increase in the proportion of SaaS businesses driving the gross margin, with the company's overall gross margin level rising from 49% in 2022 to 57.3% in 2023. At the same time, MaiFuShi has adopted the strategy of reducing costs and increasing efficiency, controlling the expansion speed, slowing down the growth rate of sales and marketing expenses and reducing research and development expenses, thus reducing the growth rate of operating expenses and releasing the profit.
Fourthly, the launch of the AI marketing model has to some extent boosted the company's stock price.
Shortly after going public, Maifushi launched the TforceAI marketing model, which uses advanced algorithms and multimodal technology to deeply analyze market data, consumer behavior data, and social media data to provide efficient and accurate marketing and sales solutions for enterprises. Its copywriting generation, image and video creation, personalized recommendations, market insights, and sales forecasting capabilities allow companies to respond more flexibly to market changes and enhance marketing effectiveness.
Compared with the above four major operating highlights, the smaller market cap may be the most critical factor for Maifushi's stock price doubling in the short term.
According to Maifushi's prospectus, the company has issued a total of 5.9497 million shares in this IPO. After the sale, this share accounts for only about 2.53% of the total number of shares of the company. Among the 5.9497 million shares, 904,100 shares were held by cornerstone investors, so the market value of Maifushi's listed shares was less than HKD 220 million. With such a low market cap, it is very easy for the stock price to rise. Looking at the market, from the time Maifushi went public to when its stock price doubled, the total turnover in 19 trading days was only HKD 280 million, while the company's market value increased by billions of Hong Kong dollars during this period.
Such a low market cap makes it easy for the stock price to rise. From the perspective of the market, Maifushi's total turnover in 19 trading days, from the time it went public to when its stock price doubled, was only HKD 280 million, while the company's market value increased by billions of Hong Kong dollars during this period.
Three potential challenges VS 14.43 times PS valuation
After understanding the logic of Maifushi's continued rise, investors should have a deeper understanding of the potential operational challenges facing Maifushi, one of which is the fierce market competition.
According to Frost & Sullivan data, although Maifushi has become the largest marketing and sales SaaS solution provider in China, its market share in 2022 is only 2.6%. The market share of leading players is only in the low single digits, indicating that the market is extremely fragmented and fiercely competitive.
Secondly, from a long-term perspective, Maifushi does not yet have a synergistic strategic advantage in product layout under intense market competition.
Maifushi's current SaaS solutions mainly rely on two iconic products, the marketing SaaS product Tyun, and the sales SaaS product Jingke, which are only aimed at the marketing and sales links in the enterprise operation process. However, other leading SaaS players in the market have extended their SaaS products and services to cover all links in the enterprise operation process, including marketing and sales, covering multiple dimensions such as supply chain management and human resources.
SaaS companies that cover the entire process have a larger market space and can achieve cross-selling of products to existing customers, thus forming strategic advantages and first-mover advantages through product synergy, and may gradually squeeze the living space of single-link SaaS product companies.
Thirdly, the profit prospect is still unclear.
Although Maifushi's adjusted net loss for 2023 has narrowed to RMB 27.736 million, which may magnify the market's future expectations for Maifushi's profitability to some extent, the real situation may be more complicated.
In fact, it is not difficult to achieve profitability by reducing sales and marketing expenses, research and development expenses, but even if so, it is only a temporary measure. The company with long-term vision will not sacrifice market expansion and future growth to form a short-term profit illusion.
Under intense market competition, once Maifushi increases the speed of market expansion, sales and marketing expenses will also increase, which will put pressure on profits. Even more critical is that Maifushi has not yet expanded its SaaS products to cover other links in the enterprise operation, which sacrifices greater potential growth space and strategic advantages of product synergy, but also enables the company to avoid major losses. However, if Maifushi expands to other links in the future, it may lead to a decline in SaaS product gross margins and an increase in operating expenses. In this case, the possibility of increasing losses is not small.
Of course, Maifushi can continue to develop in the single-line sales and marketing track, but in the long run, whether it can withstand the attack of other players who have product synergy strategic advantages is an issue, and this potential risk is not small.
At the same time, the risks faced by the precision marketing business also cast a shadow over Maifushi's profit prospects. First, precise marketing business has obvious volatility, which is highly related to the macroeconomic situation. If the industry enters a low period, precise marketing business will face greater operational difficulties; second, the increase in media platform traffic costs may also put pressure on this business.
For example, in 2023, the number of customers and per-customer spending of Maifushi's precision marketing business continued to grow, driving a growth in gross revenue, but due to the increased advertising fees charged by media platforms, the revenue of this business declined by more than 13% year-on-year.
Under the pressure of the aforementioned three potential operational challenges, Mafu Times may enter a stage of "bubble squeeze" in the future, as the company's current valuation is already at a relatively high level. According to Wind data as of the close of June 14th, Mafu Times' PS valuation is 14.43 times. During the hot SaaS concept in recent years, the PS valuation of quality SaaS targets was driven up high, but after nearly two years of "bubble squeezing", the valuations of SaaS companies have dropped significantly. For example, China Youzan's current PS value is only 1.7 times, and the PS valuations of other core SaaS companies in the Hong Kong stock market are only around 6 times. The average PS valuation of the salesforce (CRM.US), a leading SaaS stock in the US, this year is only 7.13 times. In comparison, the possibility that Mafu Times' value is overestimated is not low.
Overall, Maifushi has operational highlights, but its small circulation market value may be the most important reason for its short-term doubling after going public, and the company faces many potential challenges such as fierce market competition, lack of product synergy and strategic advantages, and unclear profitability prospects. At the same time, the current valuation is too high and has become a potential risk for stock price.
Due to the fact that the current circulation market value of Maifushi, which has surged, is still less than HKD500 million, it is still in a small range, and the possibility of continuous upward movement of its stock price in preparation for unlocking cannot be ruled out. However, if it enters the "bubble squeeze" stage, the depth of the stock price's correction may exceed the market's expectations.