Daily Fresh is pressing the reset button to accept new funding and a new identity, hoping to be reborn from the brink of death of one of the pioneers of online retail in China. The company's remaining investors — mostly investors who buy low-priced stocks — seem wary of Daily Fresh's path to a new journey. The company still has a number of issues that may leave investors clutching their heads.
Recently, Daily Fresh announced that it will sell 5.4 billion Class B shares to two investors at a price of 27 million US dollars. The two deals will allow the two investors to obtain 88% of the company's shares, while the daily premium valuation is around $30 million. The new investors will entrust their voting rights to founder Xu Zheng, who will continue to serve as the company's chairman and CEO. Daily Fresh said in the same statement that the company will acquire 100% of the shares of the Hong Kong digital marketing company Mejoy Infinite at a price of 12 million US dollars.
The valuation of Daily Fresh's current stock sale was 30 million US dollars, far higher than the company's market value of 4 million US dollars before the deal was announced. But even so, compared to the multi-billion dollar valuation at the time of the company's initial public offering (IPO) in New York two years ago, that figure is still far off.
Despite this, the deal and its implicit high valuation contributed to a sharp rise in Daily Fresh's stock price. Since the deal was announced, Daily Fresh's stock price has roughly tripled, bringing the company's market capitalization to $15.6 million. Equally important, this wave of gains has pushed the stock above $1. If the stock price falls below $1, the stock may be delisted for failing to meet NASDAQ's minimum share price requirement.
The acquisition of Mejoy Infinite will make digital marketing a critical part of the Daily Fresh restructuring process. On the same day it recently announced a new round of financing, the latest annual report submitted by the company shows that the company will optimize the private label food business launched in January last year with the aim of “completely transforming the community retail business.”
Today's Daily Fresh is the same as what it used to be. Last year, the company shut down its flagship distribution mini-warehouse related business, which allows Daily Fresh to deliver fresh produce and other groceries within an hour. Additionally, the company has shut down a business that helps digitize the food market and another business that provides retail cloud services. Compared with 2021, the company's revenue last year plummeted 60% to 2.8 billion yuan (US$400 million), and continued losses consumed most of Daily Fresh's cash reserves. At the end of last year, Daily Fresh's total debt was more than nine times its total assets.
The collapse of Daily Fresh is due in large part to the company's high-cost business model, which provides fast delivery services, and operating expenses are dwarfed by its revenue. The company also faced intense competition from companies such as Dingdong Grocery Shopping, Pinduoduo, and Meituan, which further eroded its profit margins.
To make matters worse, the relevant audit committee began reviewing the daily fresh food delivery business in April, and last year the company also admitted that it had exaggerated revenue for the first nine months of 2021. The incident resulted in Daily Fresh employees involved in fraud being fired, executives leaving their jobs, and facing lawsuits at the same time. Meanwhile, Daily Fresh began large-scale layoffs, and the company's growing predicament placed further pressure on its unsustainable cost structure.
All of these events have put tremendous financing pressure on Daily Fresh, and the company needs to adjust direction, first and most importantly, stay alive, and secondly, continue to be listed on the NASDAQ. The company said in June that the stock could be delisted from the exchange as its market capitalization fell below the minimum requirement of $5 million for 30 consecutive trading days. Daily Fresh's investors before its IPO include Tencent, Goldman Sachs, and US investment company Tiger Global.
Despite the grim situation, it's unclear how the new digital marketing business will change the fate of Daily Fresh.
First, there is very little public information about Mejoy Infinite, including financial information about its revenue generation potential. According to CB Insights, the company was founded in 2018 and its target customers are Chinese advertisers such as games and cross-border e-commerce. But that's all you can find about the company online. There is also an empty page on Facebook called Mejoy Infinite with only two promotional photos and a link to the website.
Strangely enough, Mejoy Infinite lists a phone number from mainland China, while the Facebook page shows a Hong Kong office address. As a digital marketing company, Mejoy Infinite has surprisingly few traces on the internet.
A few years ago, for Daily Fresh, such a small company was simply inconspicuous. The company's annual revenue during its heyday was close to 1 billion US dollars. Since then, Daily Fresh has changed, and people wonder if this mysterious little marketing company can help restore Fresh Daily to its former glory. Investors who have lost large sums of money at Daily Fresh won't be too confident that its founder Xu Zheng will continue to take the helm.
Meanwhile, Xu Zheng of Daily Fresh doesn't have any digital marketing experience. Prior to starting the company, he worked in Lenovo's laptop business for over 10 years and worked for Joyvio in Lenovo's agricultural division for a few years.
Ultimately, the daily fresh food and its mistakes are all Xu Zheng's responsibility. The company's website currently lists him as the sole member of its management team. Daily Fresh's board of directors consists of Xu and two other independent directors, who lead or participate in the company's audit, compensation, nomination, and management. It's hard to imagine how such a small company could set up a strong enough internal control system to avoid future mistakes.
Even though the stock price soared after the latest news was released, Daily Fresh's market sales rate was still only an insignificant 0.05, because the stock's stock price fell far faster than its revenue. Also, when the excitement about this latest development gradually turns into doubt, that number is likely to fall again.
[BT Finance Reminder] This article is for reference only and does not constitute investment advice. Investors should not use this report as the sole reference factor for making investment decisions, nor should they consider it a substitute for their own judgment.