Source: LatePost Author: Chen Jing

"After the trigger of distrust is pulled, the direction of many things will not be controlled by any party." A person close to both parties evaluated the "breakup" ending of Douyu CEO Dong Yuhui and East Buy CEO Yu Minhong like this.

This sense of distrust began when Dong Yuhui became famous in East Buy as a main anchor and reached its peak after the "little essay" incident. At the end of last year, an East Buy employee claimed that the video script was a team effort rather than all from Dong Yuhui, which was questioned by Dong Yuhui's fans as a "grab for credit." Fans and East Buy employees fought back and forth, and the stock price experienced multiple rounds of decline.

Seven months later, Dong Yuhui and Yu Minhong went their separate ways. In the past six months, Dong Yuhui took half of the profits of Douyu, and the other half was also allocated to Dong Yuhui by East Buy. In addition, Dong Yuhui's purchase of 76.58 million yuan from Douyu will also be paid by New Oriental.

According to a notice released by East Buy on July 25, the distribution of profits with Douyu to Dong Yuhui is due to "Mr. Yu and the group's appreciation for Mr. Dong's contributions." Many media outlets have summarized this profit as a "breakup fee."

Insiders close to the deal said that today's profit-sharing plan was a promise made by both parties six months ago, not compensation for the "breakup."

The above-mentioned person said that at the end of last year, a live broadcast agency offered an annual salary of 0.8 billion yuan to invite Dong Yuhui to join, and Yu Minhong promised to give Dong Yuhui hundreds of millions of yuan in guaranteed income and half of Douyu's profits in the next year in order to retain Dong Yuhui. However, it is unclear whether a contract was signed between the two sides, and the promise may have only been made verbally; six months have passed, and the guaranteed income has not yet been received. East Buy did not respond to the above information.

After the "little essay" incident at the end of last year, fans, shareholders, and employees all thought that the two sides had reached an agreement.

Dong Yuhui was appointed as the cultural assistant to the chairman of New Oriental Education & Technology Group, and also served as the vice president of New Oriental Culture and Tourism Group. With East Buy shares, he also has his own live broadcasting room where he can make decisions independently; Yu Minhong also believes that East Buy and Douyu have a common support platform behind them, and everyone in the front office does their own thing, "and everyone gets the salary and income they are satisfied with."

A top anchor who wanted to expand his personal influence and a live broadcast company that wanted to expand its product supply chain originally planned to live and work together, so why did they end up parting ways? We attempt to restore this process.

How much is Dong Yuhui's salary?

An insider close to Douyu analyzed that East Buy has always hoped to become a product company and wanted to go beyond top anchors, which led to tension in the relationship between the two sides, and both sides eventually reached a "breakup."

In the opinion of a person close to East Buy, East Buy really needs top anchors, but the difference in salary and some fans' long-term malicious comments about the company are the ultimate reasons for the "breakup" between the two sides.

Dong Yuhui once shared his experience when he first came to work in Beijing during a live broadcast: the house he rented only had a bed and a desk, and the room was too small, with the bed taking up half the space; the table was too old and collapsed when he ate, with food all over his body; even after becoming famous in 2023, he claimed that he still lived in a rented house where the air conditioner was broken.

Many fans interpreted these chats and sharing as him being treated unfairly by the company.

After the "little essay" incident last December, some media reported that Dong Yuhui's actual annual salary was only a few million yuan, plus some stock options. Dong Yuhui's fans believed this was unfair and stormed the East Buy comment section, expressing disappointment with Yu Minhong and then-CEO of East Buy Sun Dongxu.

At that time, Sun Dongxu responded that Dong Yuhui's salary was not just the few tens of millions of yuan reported online; at the East Buy shareholder meeting on July 26th of this year, Yu Minhong also said, "The treatment approved by the board for Yuhui is reasonable, and even generous."

We learned from an insider close to the deal that since the June 2022 explosion, Dong Yuhui's pre-tax total earnings at East Buy have been about 0.6 billion yuan, of which 0.14 billion yuan has not yet been received, and a small amount of stock has not yet been allocated. We have tried to verify this data with Douyu, but as of press time, the other party has not responded.

Dong Yuhui's earnings are divided into six parts: salary (wages + performance), equity, executive gifts, half of Douyu's profits with East Buy, guaranteed income, and the payment for the acquisition of equity in Douyu made by New Oriental on behalf of Dong Yuhui.

Salary and performance part.

During the first six months of live broadcasting in December 2021, including Dong Yuhui, Oriental Selection staff struggled to get off the ground. 'We used to only be able to sell 500-600,000 yuan a day on our platform, and the highest commission was only 10%, which was not enough to pay employees' salaries,' said Yu Minhong in a public interview.

There was a turning point in June 2022. Dong Yuhui's live broadcast explaining steak was widely spread. Within a month, Oriental Selection's fan base increased by more than 20 million, and Dong Yuhui's TikTok fans also approached 7 million.

Former Oriental Selection CEO Sun Dongxu once mentioned in a live broadcast that Dong Yuhui's annual salary is more than tens of millions. We learned that just the salary part alone is more than tens of millions each year, and Oriental Selection also issues multiple performance bonuses to outstanding employees, which accounts for a large part of Dong Yuhui's income.

Dong Yuhui has also brought huge profits to Oriental Selection. From the end of 2021 to the first half of 2022, Oriental Selection's overall revenue was only 24.6 million yuan; after Dong Yuhui became popular, from June 1, 2022 to May 31, 2023, Oriental Selection's revenue increased by 651% year-on-year, reaching 4.5 billion yuan, turning losses into gains, and profits of 970 million yuan.

Stocks

On April 11, 2023, after the financial situation of Oriental Selection improved, the first stock-based incentive was granted. Yu Minhong, chairman of the board of directors of Oriental Selection, was awarded 1.5 million shares, Sun Dongxu, the current CEO of Oriental Selection, was awarded 3 million shares, and CFO Yin Qiang was awarded 600,000 shares. A total of 25.359 million shares were awarded to 151 other employees.

According to people close to the transaction, among the stock incentives of 25.359 million shares given to employees, Dong Yuhui received 8 million shares, accounting for about 31.6% of the total. Half of it was attributed in April of this year, and he will receive a small part of the remaining shares in April 2025, and the rest will be forfeited.

On the day of the stock incentive grant on April 11, 2023, Oriental Selection's stock price was HKD 29, and the stock value was HKD 2.32 billion at that time. Calculated based on the stock price of HKD 11.5 on August 9, 2024, the value of Dong Yuhui's attributed stocks has fallen by 60.3%.

In February 2023, Sun Dongxu sold a total of 1.93 million shares twice and cashed out a total of HKD 0.217 billion. In the same month, Yin Qiang sold 1 million shares and cashed out HKD 61.59 million. These were the only two disclosures of executive share reductions since June 2022. The company did not disclose information on share reductions by Yu Minhong and Dong Yuhui.

Executive Gifts

In the live broadcast on December 18, 2023, Dong Yuhui mentioned that he bought a house in Beijing and borrowed money from Yu Minhong when buying the house. Three days later in another live broadcast, he mentioned that Yu Minhong had repeatedly talked about giving him more generous returns and hoped that everyone would not misunderstand Yu Minhong, 'otherwise they would feel guilty to him.' However, many people were surprised that the super anchor still needed to borrow money to buy a house, and many fans called Yu Minhong '铁公鸡/tiě gōng jī' or '葛朗台/gé lǎng tái' in relation to this.

On December 25, Yu Minhong posted a video saying that he repeatedly told Dong Yuhui that the money was for him and he did not need to repay it in the future.

People familiar with the matter said that Yu Minhong and Sun Dongxu gave Dong Yuhui tens of millions of yuan. Yu Minhong gave most of it, while Sun Dongxu gave Dong Yuhui 15 million yuan in March 2023 as a reward to help him buy a house. The two have not asked him to repay the money so far.

Half of the profits and guaranteed income of the same industry

The 'Little Essay Incident' at the end of 2023 made Oriental Selection's management see how much of an impact top anchors could have on public opinion, stock prices, and the company's image, far beyond what they expected.

Other institutions in the market have also reached out to Dong Yuhui. After the conflict broke out, Luo Yonghao publicly stated that if Dong Yuhui was willing to start a business, he would help find investors. One person familiar with the same industry as Dong said that an institution offered to pay Dong Yuhui an annual salary of 0.8 billion yuan.

Top anchors are the core assets of every live-streaming platform. In the 'Little Essay Incident', Sun Dongxu's serious attitude and opposition to 'fan circles' caused many fans to be dissatisfied. On December 16, 2023, Oriental Selection announced the removal of Sun Dongxu as CEO and executive director. Chairman Yu Minhong took over as CEO. Two days later, Dong Yuhui was appointed as the cultural assistant to the chairman of New Oriental Education & Technology Group and the vice president of New Oriental Culture & Tourism Group, and announced the establishment of his own studio, which later became '与辉同行'.

People close to the transaction tell us that Yu Minhong made a promise to Dong Yuhui, but this promise may only be oral and not on paper—that half of the profits of '与辉同行' will be shared with Dong Yuhui. At the same time, Oriental Selection may have promised Dong Yuhui guaranteed income of several billion yuan a year, mainly in cash, plus some stocks.

At the East Select shareholder meeting on July 26, 2024, Yu Minhong did not directly mention that he would distribute this guaranteed income to Dong Yuhui. He said that after distributing half of the profits earned with Dong, which amounted to 0.14 billion yuan, to Dong Yuhui, he would give the remaining 0.14 billion yuan profits to him as well. On the one hand, this was to show good will, and on the other hand, they had previously agreed on a guaranteed income, which included share issuance. However, because Dong was about to leave, the unissued shares would become void, so they switched to cash payments.

Many media outlets have dubbed this money as the "breakup fee" that East Select paid to Dong Yuhui, but insiders with knowledge of the situation say that this was an agreement reached six months ago and was originally Dong's income. On August 2, New Oriental issued a statement saying that the payment was support for Dong Yuhui and "partners", rather than a compensation for leaving the company.

As of July 25th when he left, Dong Yuhui had already received half of the profits earned with Dong from the past six months, which amounted to 0.14 billion yuan, as well as salary, performance bonus, and awards given by the high-level executives. He still had 0.14 billion yuan to claim. In addition, 4 million shares of stocks belonged to Dong Yuhui's personal account, and a small amount of stocks were still unassigned. New Oriental will pay the 76.58 million yuan acquisition fee directly to East Select and not through Dong Yuhui's personal account.

If Yu Minhong fulfills his promise, Dong Yuhui's total income before tax would be around 0.6 billion yuan. In the year and a half from June 1, 2022, to November 30, 2023, East Select had a total net income of 1.219 billion yuan. According to predictions by China International Capital Corporation, the net income of East Select in the first half of 2024 will reach 0.262 billion yuan. The total profit for the two years will be about 1.481 billion yuan. Based on this, 0.6 billion yuan accounts for 40.5% of the total profit.

In several companies jointly established by Meiwai and Li Jiaqi, Li Jiaqi holds 49% of the shares. In the holding company Qianxun Group, where Wei Ya works, Wei Ya's husband Dong Haifeng holds 52% of the shares. In the parent companies of the live streaming rooms such as Fengkuang Xiaoyangge and Xinxuan, the top live streamers are the controlling shareholders.

However, Dong Yuhui did not shoulder the same responsibilities as these super streamers, mainly serving as a host rather than managing operations or selecting products. When East Select was established, Yu Minghong set the direction of promoting agricultural products through live streaming and not charging platform fees, and Sun Dongxu was responsible for specific management tasks, laying the foundation for Dong Yuhui's rise in popularity.

Li Jiaqi has many years of experience in cosmetic counter sales and understands the price bottom line of beauty brands. He directly participates in price negotiations. He can also give feedback on many aspects of Huaxizi's products based on his intuition as a "product manager", making the brand more closely associated with him. Xinyou is the chairman of Xinxuan and directly manages the company. Decisions related to live broadcasting rooms, supply chains, and other important aspects of the business all require his participation and decision-making. At East Select, there are separate teams responsible for recruitment, product selection, and self-operated products, so hosts do not need to be responsible for other aspects of operations.

Insiders say that at the outset of the establishment of the same-stream platform, Dong Yuhui focused mainly on learning about East Select's product selection and operations, and did not make many adjustments to the business. It wasn't until April of this year that Dong Yuhui began introducing big brands and launching live streams across the country.

However, internal relations lacked trust and external public opinion spun out of control, ultimately causing the situation to deviate from both parties' original expectations.

Unsustainable coexistence.

According to Yu Minhong's plan at the end of last year, the relationship between Dong Yuhui, Same-stream platform, and East Select should be "non-interference." They share a common back-end platform system but operate independently in the front-end.

In a live stream at the end of last year, Dong Yuhui said that he had signed a three-year contract with East Select and was not willing to leave because "a man dies for his confidant." In the future, he would not only broadcast with Same-stream platform but also come to East Select to host live streams once or twice a month.

However, a lack of trust in internal relations and a loss of control over public opinion eventually caused the situation to go beyond both parties' original expectations.

In mid-December 2022, in order to retain Dong Yuhui, Yu Minhong may have made a promise to give him several hundred million yuan in guaranteed income for a year, but one person involved in the deal analyzed that the two sides may not have signed a written contract, which may have made Dong Yuhui uneasy. In March of this year, both Dong Yuhui and Yu Minhong had the intention to part ways and began discussing the details.

East Select and Same-stream platform have similar live streaming styles, with a large overlap in the products promoted and both having live streaming tourism forms. They are in competition with each other.

The most direct competition between the two parties occurs in the tourism business. In March 2024, Dong Yuhui said that he would go to Henan to live stream at the end of April and had begun recruiting merchants. At that time, he was still live streaming in Hubei. Before Dong Yuhui left, Henan New Oriental Tourism's Douyin account announced that Yu Minhong would come to Henan to live stream in early April, which caused many viewers to question whether Yu was competing with Dong Yuhui and stealing his thunder.

Yu Minhong explained that the Henan event had been arranged as early as March and requested that Henan New Oriental Tourism stop all live streaming and rectify itself, apologizing to online users.

Insiders have said that after the Henan incident, East Select's live streams in neighboring locations to Same-stream platform have been avoided. But whenever they go to a new location, they are then questioned as to why Dong Yuhui wasn't invited.

In June of this year, the live broadcast of Eastbuy in Guizhou again caused a public opinion storm. A host was criticized for being 'uncultured', while other hosts joked about the high temperature and abundance of spiders and mosquitoes in Guizhou, leading to accusations of 'regional discrimination'. According to Eastbuy personnel, the successive public opinion storms have lowered morale among the team, and subsequent outdoor live broadcasts have been suspended.

Both sides have a high degree of overlap in the products they sell, focusing on fresh food, snacks, books and other categories. However, even before the 'breakup', Huitongxing never sold any of Eastbuy's own-brand products.

According to a source close to Huitongxing, the company's product selection team had inquired about the possibility of selling its own-brand products, but did not receive a response.

A former employee of Eastbuy said that own-brand products were a key differentiator in the company's live broadcasting room, and contributed more than half of its sales. If Dong Yuhui also sold own-brand products, the two live broadcasting rooms would become even more similar, putting Eastbuy at a disadvantage. The average gross profit margin of Eastbuy's own-brand products is not high, and if Dong Yuhui were to sell them, he would probably have to pay around 15% commission. After deducting the commission, the own-brand products might still operate at a loss.

The delicate relationship between the two sides and lack of trust has left everyone involved feeling exhausted. When this exhaustion becomes publicly expressed, it will attract criticism, and negatively impact morale, resulting in a vicious cycle.

In May of this year, Yu Minhong said in a live broadcast that 'Eastbuy is now making a mess'; in June, Dong Yuhui said on a program, 'I am very resistant to selling things. I still don't enjoy this job until today'...Every time these comments on management chaos and personnel instability are made, stock prices fall and fans are lost. From the highest point in January to August 9th, Eastbuy has lost over 1.7 million fans and its stock price has fallen by 84.8%.

'The total of both sides was higher than the original, but the stock price continued to fall.' Yu Minhong said at a shareholders' meeting, he felt that if the two sides were not separated, they would fight each other in the future.

Yu Minhong said that Dong Yuhui had approached him in late February to discuss whether the company should be independent. We do not know the details of the negotiations, but separations seem to be more advantageous for both sides.

In the past six months, the 100-person team at Huitongxing has made a net profit of 0.14 billion yuan by selling third-party products, without delving deep into the supply chain. This shows that Huitongxing can earn money from 'people' rather than 'goods'. After separation, both sides will have fewer internal relationships to bind them.

For Eastbuy, there is no need to worry about how to balance internal resource allocation, and external public opinion disputes may also be reduced. 'Once and for all, the future environment will be cleaner,' explained Yu Minhong at the shareholders' meeting.

The biggest potential losers in this separation are the shareholders of Eastbuy. Since the 'little essay' incident at the end of last year, Eastbuy's stock price has fallen by 72.9%, and its market value has evaporated by 31.96 billion Hong Kong dollars. From Eastbuy's external shareholders to Yu Minhong and Dong Yuhui, all have suffered losses.

This major transaction of selling core assets was not discussed by the board of directors, but was discussed and decided by Yu Minhong and Dong Yuhui. Yu Minhong sought approval from the board of directors after the fact.

According to the Company Law of the People's Republic of China, if a listed company's purchase, sale of major assets or provision of guarantees to others within one year exceeds 30% of its total assets, a resolution shall be made by the shareholders' meeting, and more than 2/3 of the voting rights of the attending shareholders shall be obtained.

Wang Jiyue, an investment banker interviewed by Beijing Business Daily, said that although this transaction did not account for 30% of the company's total assets, it should still have gone to a shareholder meeting based on the nature of the matter and its impact on the company. If the shares held by Yu Minhong are excluded from the vote, minority shareholders can reject the resolution.

'Breaking up' cannot solve all problems.

At the end of last year, Yu Minhong made a promise in a live broadcast that if one day Dong Yuhui left, he would give the new live broadcasting room to him and not leave him with nothing.

After both sides formally decided to separate, Eastbuy sold Huitongxing to Dong Yuhui for 76.58 million yuan, and Yu Minhong said he would pay this fee for Dong Yuhui via cooperation with the New Oriental group. 'The company is a gift from me to Yuhui,' he explained in his Douyin comments.

The valuation of 76.58 million yuan is extremely low. Until June 30, 2024, Huitongxing had made a net profit of 0.14 billion yuan. At the valuation of 76.58 million yuan, the PE ratio is only 0.5 times. Dolphin Research estimates that based on the average PE ratio of 20 times of the growth stage head live e-commerce companies, Huitongxing's net profit of 0.3 billion yuan per year, which should value it at 6 billion yuan. However, Eastbuy ultimately valued Huitongxing based only on its net assets. This approach is usually used in the case of company liquidation or lack of market reference value.

A source close to the transaction said that once Eastbuy raised Huitongxing's valuation, Dong Yuhui would choose to leave the company and abandon the acquisition of Huitongxing, rendering the high valuation meaningless.

In this transaction, Yu Minhong complied with his promise to give the company away and got a dignified exit. Dong Yuhui did not have to reorganize the team or rent an office again and got a real bargain deal. External shareholders without any speaking rights can only watch the stock price fall to the lowest point in two years.

An industry insider said that all the live broadcast rooms under the banner of Huayi Bros online sold about 4 billion yuan worth of goods in the past six months, which is about the same as the sales of all live broadcast rooms under the Oriental Selection brand in the past six months.

After divesting itself of this core asset, the performance of Oriental Selection will be significantly affected. Bocom International predicts that for the fiscal year 2025 (ending May 31, 2025), the GMV, revenue, and profit decline of Oriental Selection will reach 34%, 9%, and 20%, respectively. Shenwan Hongyuan predicts that net profit will decline by 12% to 0.853 billion yuan in the fiscal year 2024 (ending May 31, 2024).

Without super anchors, how can Oriental Selection find the next growth point?

Yu Minhong said that Oriental Selection will continue to walk on two legs in the future, one is traffic, and the other is products. Since launching its first self-operated product in March 2022, Oriental Selection has made it clear that it wants to be a national consumer brand company rather than an MCN institution relying on anchors. After a round of ups and downs, Yu Minhong publicly stated more clearly that in the future, Oriental Selection will not allow anchors to independently set up platforms and operate independently, because this will bring about tearing and unpredictable results.

A former employee of Oriental Selection said that the continuous negative news in the past six months has directly affected new users placing orders. In April of this year, he saw on Douyin's backend that 90% of orders were from repeat customers within a month. Even if there are many offline live broadcasts, the sales volume during other times will decline, and the total volume will not change much. The refrigerators and snack cabinets of old users are full, so they will naturally reduce their purchases.

Sending away former employees with dignity is the first step in restoring the company's image. The next step is to get more traffic. How to select more excellent anchors?

Yu Minhong said that New Oriental still has more than 0.03 million old teachers, and many excellent anchors can be found among them. This is a very optimistic judgment. Meiwan has cooperated with hundreds of anchors, but in the end, it still depends on Li Jiaqi. After Weiya disappeared, the anchors she trained for a period of time had no way to create another Weiya. So far, no one can replicate the super anchor.

New Oriental still has more than 800 offline teaching points, and parents are a very stable source of customers. In terms of products, Oriental Selection hopes to benchmark Sam's Club. However, Oriental Selection does not have the purchasing power of hundreds of billions of yuan in a year like Sam's Club, making it difficult to leverage its scale to leverage top suppliers and obtain low prices. It is also difficult for it to launch industry-leading new products. Oriental Selection does not have a market research department, so determining what new products to make depends on what products sell well on JD, Sam's Club, and Hema.

Dong Yuhui also missed the best opportunity to become a super top anchor like Li Jiaqi and Weiya.

A former mid-level executive of the anchor agency believed that they should have maximized Dong Yuhui's personal IP influence when he first became popular, and used the logic of "making people" rather than "making numbers" to create the Oriental Selection live broadcast room. The conflict at the end of last year meant they missed out on an opportunity to create a Li Jiaqi, but this did not conform to Yu Minhong's original intention of wanting to build a product company.

The pitfalls that live streaming e-commerce institutions have stepped on need to be walked again by Huayi Bros Online. Only by delving into the supply chain can we manage the quality of goods well. When the next major anchor emerges, we need to make good money and power distribution to avoid a double-loss situation. To manage well, Dong Yuhui needs to first overcome his own aversion to selling goods and doing business.

"Breaking up" cannot solve all the problems between the two parties, but it can at least solve one problem. The two parties who have lost trust can finally stop worrying about it.

Editor/Lambor