Source: Yu Jian Column
2022 is a magical year, and it is even more dramatic for Himalaya, once the number one player on the audio track. In March 2022, Himalaya once again submitted a form to the Hong Kong stock market to hit the IPO, but again failed due to material failure.
Previously, in September 2021, Himalaya also submitted an IPO application to Hong Kong stocks after failing to land on Nasdaq, but because it was more than 6 months, the prospectus documents showed that it was invalid. This also means that Himalaya, which has entered the secondary capital market three times, may have encountered obstacles to listing.
Although the reason for the blocking of Himalaya’s IPO is mostly due to the invalidation of the prospectus documents, there are many problems exposed in the prospectus, and even the current operating difficulties of Himalaya are fully exposed. According to observations, Himalaya has lost nearly 10 billion in three years, and its profit is in the foreseeable future. Combined with the current situation, it is not easy for Himalaya to break through in the short term, and the road to listing will also be full of variables.
Losing money for three consecutive years, it is difficult to escape the difficulty of making profits
According to the Himalaya prospectus, from 2019 to 2021, Himalaya’s annual losses were 1.925 billion yuan, 2.882 billion yuan, and 5.106 billion yuan, with a cumulative loss of 9.913 billion yuan.
Although losses are the norm, Himalaya’s industry position remains strong. According to iiMedia Research (iiMedia Consulting) data, among the online audio platforms consumed by Chinese netizens in 2022, Himalaya will become the online audio platform chosen by the most users with a high market share of 65.5%, followed by Lizhi, Dragonfly FM and Cool I listened freely accounted for 39.5%, 35.8% and 34.5% respectively.
At the same time, 61.11% of consumers have consumed in Himalaya, 50% of consumers have consumed in Dragonfly FM, 38.89% of consumers have consumed in Cloud Listening, 24.6% of consumers have consumed in Lazy Music, 15.08% of consumers have consumed in Lychee consumption too. This also means that, no matter in terms of market share or user penetration, Himalaya is a well-deserved “industry big brother”.
However, in stark contrast to its industry status is its “unspeakable secret” that is difficult to make profits. According to statistics, as of 2021, Himalaya, established in 2012, has been losing money for more than 10 consecutive years, and has not yet achieved profitability, and even its losses are expanding year by year.
It is worth mentioning that in the early years of Himalaya, there was no clear plan for when to make profits, let alone a specific timetable. Therefore, in recent years, major shareholders have lost patience one after another and have chosen to retreat one after another. Under such pressure, Himalaya also had to put it on the agenda.
It is understood that in August 2022, Yu Jianjun stated at the internal staff meeting that he would achieve a single-quarter profit in the fourth quarter of 2022, reverse the long-term loss situation, and achieve full-year profit in 2023. Five years later, the annual income will be 20 billion yuan and the profit will be 4 billion yuan.
It’s just that Himalaya’s profit dream seems a bit wishful thinking. How likely it is to turn losses in the fourth quarter can be glimpsed through its past performance. According to observations, the reasons for Himalaya’s difficulty in making profits can be attributed to three aspects.
One is that the revenue structure is too single. Although Himalaya’s revenue is divided into three sources: subscription, advertising, and live broadcast, subscription revenue exceeds half of the country. According to the prospectus data, during the reporting period, subscription revenue increased from 1.274 billion yuan in 2019 to 2.992 billion yuan, accounting for 47.2% of revenue to 51.1%.
The growth of subscription revenue is actually the result of its trade-off with advertising and live broadcast revenue. As its revenue is increasingly dependent on membership subscriptions, its business structure tends to be single, so it also runs counter to the “revenue diversification” that capital has always pursued.
The second is that its marketing costs remain high, causing Himalaya to make ends meet. According to the data in the prospectus, from 2019 to 2021, sales and marketing expenses will be as high as 1.219 billion yuan, 1.707 billion yuan, and 2.630 billion yuan, accounting for 45.2%, 41.9%, and 44.9% of the total revenue for each period, respectively. The marketing investment, which accounts for nearly 50% of the revenue, obviously makes Himalaya a little overwhelmed.
However, in the face of the coming of the 5G era and the general trend of short video platforms seizing users’ online time, it is a very helpless choice for Himalaya to increase the cost of customer acquisition and maintain the positive growth of active users on the platform. It is also obvious to Himalaya that “the drug cannot be stopped” for paying customers.
Third, Himalaya is facing difficulties in content ecology. As a content ecosystem composed of PGC+PUGC+UGC, Himalaya has also suffered unprecedented impact on the creator side, and even the previous dividend of the “ear economy” era is gone forever. It is worth noting that currently Himalayan UGC (User Generated Content) content dominates the platform, accounting for as much as 90%.
At the same time, Himalaya’s dependence on platform content creators is also increasing day by day. However, in recent years, the activity of content creators in Himalaya has not increased but decreased, which makes Himalaya anxious. According to financial report data, in 2020, the number of UGC active content creators has shown a downward trend year by year since 2020.
It is worth mentioning that on the Ximalaya platform, more than 90% of the content is free content, and paid content accounts for less than 10%. The company’s monetization method still mainly relies on member subscriptions. Although this shows that there is still a lot of room for realization, it also shows that its ability to realize is insufficient.
Capital retreat, layoffs and burden reduction, it is difficult to tell a capital story in the Himalayas
Before the short video track became hot, the online audio platform was once a favorite in the capital market. Under the capital relay race, Lizhi also took the position of “the first online audio stock”. However, although lychee is the first to arrive, it is difficult to become a “model” for the Himalayas.
It is understood that since Litchi went public, its market value has shrunk by nearly 90%, and it has also fallen into the quagmire of losses. According to media reports, in October 2022, Lizhi received a notice from Nasdaq saying that it did not meet the minimum stock price requirements and that the delisting crisis had arrived.
This also means that Lizhi, which once enjoyed the treatment of many stars, is “falling out of favor” in the capital market, and investors even avoid it. The Himalayas also cannot escape the fate of being “abandoned” by capital.
For example, in May 2019, Shanghai Zendai Himalaya Network Technology Co., Ltd. underwent a number of industrial and commercial changes. 12 directors, including Xiaomi’s vice president Hong Feng, withdrew, leaving only the company’s CEO, Yu Jianjun. Since then, Himalaya has failed to hit the Hong Kong stock capital market twice, and has suspended its listing plan in Hong Kong.
It is understood that the main reason for the obstruction of Himalaya’s IPO is the lack of investor support for the IPO plan to raise US$100 million, and some private shareholders’ request to withdraw. It can be seen that the embarrassment of Himalaya is that its old shareholders have gradually lost patience and confidence in it, but the new shareholders have not yet seen it.
Although according to its prospectus, Tencent holds a 5.33% stake in Himalaya through the image structure of a wholly-owned investment company, Xiaomi and China Literature Group hold 3.4% and 3.05% respectively, and TAL, Sony Music, and Baidu also hold 1%. The -2% shareholding ratio is on the list of shareholders, and there is no shortage of “luxury shareholders” behind Himalaya. However, its impact on the IPO has gone through ups and downs, which seems to indicate that Himalaya may be becoming a hot potato, and it is difficult for a “taker” to continue to follow up.
It is precisely because of this that Himalaya is also facing the urgency of making quick profits and going public as soon as possible. On the one hand, Himalaya has to include a profit-making plan in the timetable. On the other hand, Himalaya needs to continue to tell its capital story well and prove its commercial value.
It is understood that under the pressure of performance, Himalaya has to increase the number of advertising spaces on the platform, and at the same time reduce the number of employees to bring more possibilities for quick profits. However, the growth obtained by these two methods will have incalculable “side effects”. Frequent layoffs will not only affect its employer image and brand image, but will also become an important factor for the capital market to assess its potential development risks. At the same time, the damage caused by the flood of advertisements to the user experience is self-evident, and it must be a double-edged sword.
Users fled, high-quality experience and commercial realization are difficult to achieve
Platforms that rely on content monetization often have a common problem. That is, there is a huge price to pay for content creation. In addition to the problem of a single revenue structure, Himalaya’s high content cost is also the root cause of its difficulty in achieving large-scale profitability.
According to the prospectus, Himalaya’s revenue sharing fee was 462 million yuan in 2018, accounting for 31.2% of operating costs, 31.7% in 2020, and 26.4% in the first half of 2021.
While relying too much on UGC content, Himalaya often pays a heavy price for content copyright. It is understood that Himalaya once compensated nearly 50 million yuan for content infringement. In recent years, Himalaya has also been frequently publicly named and criticized by many writers and musicians due to copyright issues, and various infringements are common.
For Himalaya, original and high-quality content is the lifeblood of its massive traffic and commercial realization. For platform users, original and high-quality content is also an important reason for them to be active and stay on the platform. However, while the originality of the content is not fundamentally guaranteed, more and more online advertisements are caused by the pressure of monetization, which is also seriously damaging the user experience.
It is understood that after successive years of losses, Himalaya has carried out various platform “reforms”. The most intuitive feeling brought to platform users is that there are more advertisements and the user experience is seriously reduced. And on multiple social platforms and Internet complaint platforms, users can see too many complaints about Himalaya advertisements everywhere. For users who have no upper limit for the pursuit of high-quality content, it is obviously unlikely that there will be no lower limit for Himalaya’s advertising tolerance. This is bound to make some users quit and no longer be active.
It can be seen that Himalaya, which relies on the content of the platform, seems to have fallen into a vicious circle of looking forward and backward, taking care of one thing and losing another, and it is difficult to extricate itself. And when it is difficult to have both high-quality experience and commercial realization, how can its business model stand the test of the market?
epilogue
As a leader in the online audio market, Himalaya was once the darling in the eyes of capital and an upstart in the Internet “ear economy” era. It’s just that time has passed, and as the dividends of the era of online audio have faded, its popularity has also been reduced.
Although the current online audio market structure has been fixed, top players have almost divided up the entire market. However, the peripheral short video platforms are becoming the new “opponents” of the online audio platform, and they are in another higher dimension, making Himalaya helpless to fight back.
As Himalaya’s profitability becomes more and more urgent, it has to rely on burning money for growth and increasing advertising space to obtain more income for a long time. But as we all know, there will be a threshold in this way of increasing revenue and reducing expenditure. Once the balance is broken, it will only be counterproductive. And just like the magic of Murphy’s Law: If there is a chance that things will go wrong, no matter how small the possibility is, it will always happen.
Therefore, today’s Himalayas are repeatedly testing on the edge of danger, and what awaits it is the possibility of some deterioration.
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