Click to read the original article for details. "Selling 1.2 billion cups a year, enough to circle the Earth four times," Xiangpiaopiao milk tea (603711.SH) finally went public after many twists and turns, but its first semi-annual report was a shocker. On the evening of August 16, Xiangpiaopiao released its interim results, reporting operating revenue of 870 million yuan, up 55.38% year-on-year. The net loss for the first half was 54.586 million yuan, a year-on-year increase of 78.92%. The loss in the same period last year was 30.5081 million yuan. Xiangpiaopiao officially listed on November 30, 2017. Nine months later, the capital market is not satisfied with its performance. As of the close on August 16, Xiangpiaopiao's stock price closed at 19.36 yuan per share, down 1.33%, and down 26.81% since the beginning of this year. Despite a significant increase in revenue, the company posted a loss, which Xiangpiaopiao attributes to seasonal factors. Xiangpiaopiao explained that the second quarter is traditionally the off-season for cup-based solid milk tea sales. Because Xiangpiaopiao's main products are solid cup milk tea, their instant brewing and drinking characteristics determine their hot drink nature, selling well in cold winter months but less in summer. Therefore, the fourth quarter to the first quarter of the next year is the peak season, while the second and third quarters are the off-season for product sales. On the other hand, rising costs are also a major reason for the loss. Since 2017, raw material prices have risen significantly, but Xiangpiaopiao has not adjusted product prices, leading to a significant decline in gross margin compared to the same period last year. In the first half of 2017, the gross margin was 33%, which further declined to 30% in the same period this year. The impact of rising costs on profits is significant. However, another reason for the loss is related to selling expenses. Xiangpiaopiao has long been known for its massive marketing spending. In the first half of the year, selling expenses reached 317 million yuan, up 54% year-on-year, accounting for 36% of revenue. In the three years before listing, according to the prospectus, from 2014 to 2016, advertising expenses were approximately 333 million yuan, 253 million yuan, and 359 million yuan respectively, accounting for 28.81% of the operating costs over the three years, while net profit was only 70% of advertising investment. Image source: Visual China So why didn't the advertising and promotion in the first half bring profits to Xiangpiaopiao? The reason may be related to the increasingly fierce competitive environment. The domestic aseptic liquid milk tea market has always been a battleground for large beverage companies. Uni-President, Master Kong, Kirin, Wahaha, and Suntory hold more than 72.1% of the aseptic liquid milk tea market share, so it is not easy for Xiangpiaopiao to get a piece of the pie. Compared with products from Master Kong and Wahaha, Xiangpiaopiao's product line is particularly single. The company also mentioned in the risk warnings of the prospectus that its operating performance is heavily dependent on the production and sales of cup milk tea products. Although it plans to enter the liquid milk tea market through fundraising investment projects, it still needs to invest more time and resources. In contrast to the heavy advertising spending, Xiangpiaopiao has been "saving" on R&D expenses. In 2017, R&D expenditure was only 13.9 million yuan, accounting for only 0.53% of total revenue. In the first half of 2018, this figure further declined to 3.68 million yuan, down 34% year-on-year. As of the end of 2017, the company had only 18 R&D personnel, accounting for 0.56% of the total workforce. For the second half of the year, Xiangpiaopiao stated that it will continue to optimize the sales organization structure and sales system. The focus is to integrate the solid milk tea and liquid milk tea teams, making them relatively independent at the provincial level and below, while integrating and sharing at the provincial level and above. It will continue to optimize the deep cultivation and channel sinking of solid milk tea, tapping into consumption growth opportunities and potential in third-tier and below cities. It will focus on precise distribution in 136 key cities to improve liquid milk tea sales performance. It is worth noting that Xiangpiaopiao's main product is cup milk tea. To broaden its business scope, Xiangpiaopiao also intends to enter the liquid milk tea market. However, Xiangpiaopiao stated that liquid milk tea is still in the market investment period, and achieving the expected goals for the liquid milk tea project will require more time and resources. The company's single-product situation will continue for some time. If the cup milk tea market environment undergoes major changes, the company's operations will be significantly affected. In addition, on August 1 this year, Xiangpiaopiao stated on the interactive platform that it had raised prices for its Delicious series milk tea in May 2018 and currently has no plans to develop offline stores. The demographic dividend is disappearing. As consumers' consumption concepts gradually become more rational, huge advertising investments cannot bring more exposure to companies but will further erode profits. If the ability to develop products is lacking, the company's future prospects are worrying. Compiled from Jiemian and Listed Company Food Headlines. -END-