Station B Chen Rui Does Not Compromise: Ideal Is More Than Business

When an elephant rides a unicycle, the only way to avoid falling is to master balance. Station B is in this situation.

On March 29, the second listing of station B was realized in Hong Kong, and it was directly broken. On the same day, Hong Kong stocks at station B closed at HK $800, down 0.99%; at the same time, US stocks closed at US $97.08 (about HK $754.65), up 1.50%, and before trading, they were up 1.35% to US $98.39 (about HK $764.83).

To a certain extent, station B has traces to follow. The issue price of HK $808 per share directly raises the fundraising threshold and there is a large premium space for US stocks. And in the United States listed in the Chinese capital stocks, is facing a storm.

Last week, more than 30% of China's capital stocks fell. Among them, iqiyi shares fell 37.6% from $27.94 at the opening of Monday to $17.43 at the end of Friday; Tencent music fell from $30 to $20.10, down 33%; vipshop fell from $45.28 to $31.19, down 31.1%.

One of the reasons behind this is that on March 24, the securities and Exchange Commission (SEC) passed the final amendment to the foreign company Accountability Act and solicited public opinions. According to the latest act, if a foreign issuer fails to meet the inspection requirements of the public company accounting oversight board for three consecutive years, its securities will be delisted. The new rules will take effect in 30 days.

This was a heavy blow to China General stocks, with more than 40 stocks falling more than 10% at the end of the day. The bill was first proposed in March 2019 to require foreign issuers not to be owned or controlled by foreign governments, and to require foreign companies listed in the United States to comply with the auditing standards of the public company accounting oversight board of the United States, or face potential delisting risks. On December 2, 2020, the US house of Representatives passed the bill.

"Three years ago, we chose to list on NASDAQ first because the US capital market was an open market at that time. I hope it can maintain this openness, which is a very important competitiveness. " On March 29, during a group interview with reporters from the 21st century economic report, chairman and CEO Chen Rui said that he was paying close attention to and studying the effect of the foreign company Accountability Act.

Chen Rui does not deny that this market situation directly affects the stock price of station B. "China capital stock has experienced the biggest decline in the past five years. This should be regarded as a "black swan" incident. In this case, we have been successful in listing. For the company, I have full confidence that the long-term share price should prove everything. " He also mentioned that the first day of listing of U.S. stocks at station B was also broken.

As a matter of fact, the reason why station B chose to go to Hong Kong for secondary listing is to seek certain initiative under the changing environment.

And this is just one of the links of station B balance, even the easiest one.

400 million Mau?

The key to mastering the balance is to move forward at a constant speed. If you put it in the capital market, you will see a rapid growth.

Chen Rui knows this. At the financial report meeting in February, he put forward a new target of user scale, that is, Mau (monthly live) will reach 400 million by 2023. This is two years ahead of schedule.

The foundation gas of station B comes from the previous 150 million and 220 million monthly living targets, which have given station B a huge return. Although the loss continued to expand, but the enthusiasm for capital did not decrease. Station B's share price was only close to $23 in the same period last year, with an increase of more than six times in the annual cycle. The financial report shows that in fiscal year 2020, the total revenue of station B is RMB 12 billion (US $1.8 billion), with a year-on-year increase of 77%; the net loss is RMB 3.1 billion (US $468 million), and it is RMB 1.3 billion in 2019, expanding year-on-year.

But it's not easy to reach 400 million months. Ai Rui data shows that in 2020, 86% of users of station B are people under 35 years old, that is, after 85. In 2019, the actual population aged 10-35 in China will be about 353 million. It is difficult for station B to fully penetrate this age group, and even if it is achieved, there is still a long way to go before the goal of 400 million.

This means that the next expansion of station B should not only go beyond the city level, but also beyond the age circle. Given the vastness and complexity of China's market, this is not an easy target to achieve. Moreover, station B should adhere to its unique tonality.

According to the data of China Mobile Online Video Industry released by questmobile in July, 2020, iqiyi has more than 560 million monthly live users, Tencent has 510 million monthly live video users and 240 million Youku monthly live users.

The subtext is that when the monthly life of station B exceeds 400 million, it should be close to the breaking degree of iqiyi and Tencent. Behind this is the huge cost of capital. According to the financial report, the content cost of iqiyi will reach 20.9 billion yuan in 2020, exceeding the total revenue of station B in that year. In this year, iqiyi's total revenue was 29.7 billion yuan (about US $4.6 billion), a year-on-year increase of 2%; and a net loss of 7.007 billion yuan (US $1.1 billion), compared with a net loss of 10.277 billion yuan in the same period of last year, and the loss continued to narrow.

Of course, iqiyi is not the same as website B. pugv (professional user generated video) content accounts for the vast majority of traffic. However, the up owners of station B are also faced with strong tapping of byte system, including "Wizard finance" and other well-known up masters. According to the 21st century economic report, it is normal for byte system to promise the up owners to double their income. According to media reports, bytecomb's revenue more than doubled in 2020 to about $35 billion, and operating profit reached nearly $7 billion, compared with less than $4 billion in 2019.

What's more, when station B breaks down again, OGV (professionally generated video) content is essential. This is also a money burning area.

In addition, the premium of station B comes from its unique tonality. When the user scale increases, the maintenance of tonality depends on the algorithm. This is another big investment.

Station B issued 25 million shares of class Z common shares in this round, with a net raised capital of about HK $19.87 billion (before exercising the over allotment rights). In case of full exercise of the over allotment rights, station B will obtain an additional net amount of HK $2996 million for the 3.75 million shares to be issued after the exercise of the over allotment right.

According to the previous announcement, about 50% of the money is used for content, about 20% for research and development, about 20% for sales and marketing, and about 10% for general enterprise purposes and working capital needs.

Content belief

Objectively, station B is a company whose business model has not yet been fully opened up.

In 2020, mobile games will be the largest source of revenue for station B, accounting for 40% of the total revenue. Before 2017, the performance of station B was mainly driven by games, with revenue accounting for more than 80%, and then decreased year by year. But station B's business model of relying too much on games can't last.

B station main station business and game distribution business are separated, follow different logic and rely on different resources. On the one hand, out of the circle to B station game business contribution is limited. On the other hand, for station B, which is good at secondary game distribution, its advantage lies in the core secondary users, while the secondary characteristics of new users brought by out of circle are not obvious, and the marginal effect of further expansion is limited.

At the same time, B station game self-study ability is insufficient. Domestic secondary game developers are more and more inclined to self-study, and regard station B as an important promotion or combined transport channel. Therefore, the most direct way of thinking for station B to get good products is to strengthen self-study and develop its own high-quality quadratic game, but this means higher investment and greater risk. In addition, compared with Tencent, Netease and other veteran game manufacturers, the gap is not small.

The second largest source of revenue for station B is value-added services, with revenue of 3.846 billion yuan in 2020. This income mainly comes from subscription income and live broadcast of large members. Station B first released the data related to the live broadcast business in the first quarter of 2019. The effective live Mau was 11.4 million, and the quarterly paid users were 1.2 million. The revenue of virtual live broadcast accounted for 40% of the live broadcast and value-added service revenue. According to the calculation of Anxin securities, the quarterly live broadcast income of station B in 2020 will be about RMB 400 million to 600 million, which is still far from the revenue of Huya and other stations which exceed 2 billion in a single quarter.

The potential source of revenue for station B is advertising, with a revenue of 1.843 billion yuan last year, which is also the most direct cash flow mode for station B to break the circle.

But in advertising, station B is restrained. Chen Rui once promised that there would never be patch ads in the video, and that "community first".

In his opinion, station B is still a diversified income model in the long run, and the essence of income thinking is consumption. "We use content to attract users, communities to retain users, and then provide users with more interested content or content derived things, and if users like it, they will consume it. This is our business model. " Chen Rui said.

Under this line of thinking, continuing to optimize the content is the bottom goal, but it does conflict with short-term commercialization, especially for a loss making company.

Chen Rui will balance, but he does not intend to compromise, and believes that this is the belief of station B. "If you look at the content of station B, you can feel that it is different from other platforms. This "difference" needs to be watered by faith. "

"We believe that quality content is the most important competitiveness, and we should insist on doing the right thing. The world is very cruel. In this industry, more and more "bad money drives out good money". You think you are doing the right thing, but reality will teach you to be a man. But why do we insist on doing the right thing? Because we still believe in the possibility that we can do one thing well enough in the right way. " He said.

"China's Internet is an extremely competitive place, even a place where there is no bottom line for competition. How can we survive the fierce competition of the Internet in the next few years? It's also a challenge for me to verify that a company that insists on doing the right thing can do a lot and well in the end. I will go on like this all the time. " Chen ruidao.

Chen Rui's insistence is also reflected in station B's equity. Relying on the same share with different rights mechanism, he holds 14.2% of the shares of station B, with 44.6% of the voting rights; Xu Yi, the president, holds 8% of the shares and 24.7% of the voting rights; Li Nan, vice chairman and chief operating officer, holds 2.3% of the shares and 6.6% of the voting rights. The management of station B firmly grasped the actual control of the company.

In contrast, Tencent holds 12.4% of the shares, with only 4.0% of the voting rights; Taobao China holds 6.7% of the shares with only 2.1% of the voting rights. Tencent and Ali are also Chen Rui's rebalancing.

Whenever he appears outside, Chen Rui always looks like a successful businessman. But his microblog avatar is the novel "my sister, how can I be so cute! 》The heroine takasaka tongnai is proud, kind and simple.

I believe that behind station B, there is also Chen Rui's own moon.

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