Vending machines may be out of fashion, but Youbao, the industry leader, is rushing to list on the Hong Kong Stock Exchange. On the evening of May 27, Beijing Youbao Online Technology Co., Ltd. (hereinafter referred to as "Youbao") disclosed its prospectus, planning to list on the Hong Kong Stock Exchange. This is the first time Youbao has publicly released financial data since it was listed on the New Third Board in February 2016 and delisted in March 2019. Vending machines were one of the more lively new retail formats around 2017. How is Youbao, which has been established for ten years and is the "number one" in the domestic smart vending machine field, doing now? According to the prospectus, Youbao's revenue from 2019 to 2021 was 2.727 billion yuan, 1.902 billion yuan, and 2.676 billion yuan respectively; it had a small profit in 2019, but entered a loss state in 2020-2021, with net losses of 1.184 billion yuan and 188 million yuan respectively, and adjusted net losses of 815 million yuan and 170 million yuan respectively. Youbao, whose performance has been greatly affected by the epidemic, has made its biggest change this time: it no longer relies on franchisees but has transformed into a company that sells goods and places points through "partners." In 2021, of Youbao's 2.67 billion yuan in revenue, 1.92 billion came from selling goods (referring to smart retail business revenue), with products mainly food and beverages, and nearly 60% of that revenue came from partners. By the end of 2021, Youbao had 102,700 points, of which 70% were paid for by partners. This is actually a new type of partner model that Youbao has been focusing on promoting. Some interviewees said that this can be considered a franchise model, but because operations are handled by Youbao, the definition is vague, so the term "partner" is used. The purpose of promoting it is the same as franchising: to transfer point costs and quickly capture the market. In the past decade, or even the past five years, the last thing Youbao worried about was financing. Since its establishment 11 years ago, it has completed 10 rounds of financing, with a galaxy of star institutions behind it. During its listing on the New Third Board, it also introduced institutions such as CSC Financial Capital, CICC Capital, and Ant Financial. After delisting, it completed a 1.6 billion yuan strategic financing led by Ant Financial and followed by Primavera Capital. The prospectus shows that founder Wang Bin and his concert party Chen Kunrong collectively hold 21.99% of shares, with Wang Bin holding 17.9%; the second largest shareholder is Ant Group, holding 16.68%; in addition, Primavera Capital holds 5.56%, and CICC Qiyuan holds 3.96%. In the past, Youbao, favored by capital, was a company that had run through its business model, entered a profitable track, and made money from franchisees and advertising. Now, Youbao has gone from years of profitability during its New Third Board listing to losing 1.4 billion in two years, changing its franchise model to a partner model, and no longer relying on pure-profit advertising but honestly selling goods. Does the capital market still recognize this former "first vending machine stock"? Not making money anymore In the past, the outside world did not worry about Youbao's ability to make money. Because it began to make a profit five years after its establishment and remained profitable until its delisting from the New Third Board. From 2015 to 2017, its net profits were 23.52 million, 77.5 million, and 118 million yuan, and it maintained this until the first three quarters of 2018, with a net profit of 101 million yuan. But now Youbao is starting to lose money. From maintaining profitability to losing 1.4 billion in two years, what happened to this company? Three data points in the prospectus can answer this question indirectly. First, look at revenue. From 2019 to 2021, Youbao's revenue was 2.727 billion, 1.902 billion, and 2.676 billion yuan, with a year-on-year decline of 30% in 2020 and a year-on-year increase of 41% in 2021. Dong Bo, an investor focused on new retail, told Kailuobo Finance that compared with the full-year revenue of 2.1 billion in 2017 and 1.8 billion in the first three quarters of 2018, it can be seen that Youbao entered a high-growth rhythm again in 2019, but was soon affected by the epidemic in 2020, and revenue returned to the level of three years ago. For Youbao, 2020 and 2021 were a period of recovery. Youbao's four major revenue sources Source / Prospectus This brings us to Youbao's revenue sources: smart retail business, supply chain operation services, digital value-added services, and others. In layman's terms, they correspond to selling goods, buying and selling leased equipment, advertising and system maintenance fees charged to operators, and mini KTV. In 2020, all four businesses suffered setbacks, with revenue from selling goods down 13% year-on-year, revenue from buying and selling leased equipment down by one-third, advertising and system maintenance revenue cut by 60%, and mini KTV revenue down by 80%. Youbao explained in the prospectus that all of this is directly related to the epidemic. Under the epidemic, outdoor foot traffic decreased significantly, so vending machines sold fewer goods, demand from affiliated point operators (which can be understood as franchisees) and leased equipment decreased accordingly, advertisers began to "flee," and of course, consumers using mini KTV also decreased. By 2021, of Youbao's full-year revenue of 2.676 billion yuan, selling goods accounted for 1.92 billion, buying and selling leased machines accounted for 480 million, advertising and system maintenance revenue accounted for 250 million, and mini KTV revenue accounted for 30 million. Except for the mini KTV business, the three major businesses returned to a growth trajectory, but they did not reverse the loss situation. The second data point is gross profit. The level of gross profit determines the monetization space of Youbao's various businesses. From 2019 to 2021, Youbao's gross margin fluctuated greatly, at 48.7%, 29.4%, and 41.1% respectively. The fluctuation in Youbao's gross margin in 2020 was mainly due to two segments. One is the goods-selling segment. Youbao's highest-margin sales scenarios are in transportation hubs and public places; the other is that the company's most profitable business is advertising in digital value-added services. In 2020, when the epidemic broke out, revenue from both segments dropped sharply. By 2021, Youbao's overall gross margin recovered to 41.1%. If vending machines are seen as miniature convenience stores, this level is higher than most supermarkets and convenience stores. However, Dong Bo believes that compared with Youbao's 54% gross margin in 2017, there is not much room for improvement. To make money in the future, it still needs to increase vending machine sales and reduce operating costs. Finally, look at net profit. Youbao had a net profit of 40 million yuan in 2019, but in 2020, it turned from profit to loss, with a net loss of 1.184 billion yuan. In 2021, the loss narrowed to 188 million yuan. In the past three years, Youbao's various expenses have been relatively stable. The reason for the huge loss in 2020, in addition to the sharp decline in revenue, was also the increase in general and administrative expenses and net losses from impairment of financial assets. The prospectus explains that part of the general and administrative expenses was used for employee share incentives, and the impairment of financial assets refers to the increase in trade and other receivables under the epidemic. No longer relying on franchisees? Youbao's second major change is to weaken the franchise model and strengthen the partner model. For Youbao's business model, the ability to cover points is crucial, but to be profitable, it also needs to see how to use lower costs to accelerate market capture. Dong Bo told Kailuobo Finance that there is a saying in the industry that Youbao's scale expansion is inseparable from the founder's strong resources in connections and capital. In fact, Youbao has been exploring ways to achieve profitability. In its early days, Youbao adopted a heavy-asset self-operated model. The main cost for such vending machine operators is the cost of purchasing machines. At that time, the purchase cost of a vending machine was 20,000 to 30,000 yuan. During its expansion period, by 2015, Youbao turned to open and promote a franchise model. Under this model, franchisees made money by operating product sales and sharing advertising profits. Youbao could expand the market on a large scale while transferring the difficult-to-profit product sales business to franchisees, improving its cost structure. In fact, Youbao did start making a profit in 2015. But the problem is that if product sales are not profitable, franchisees will naturally not stay. Dong Bo learned that since 2020, Youbao's franchisee attrition has been relatively serious. Combined with previous financial reports, it is found that the "affiliated point operators" mentioned in this prospectus refer to franchisees. The prospectus shows that at the beginning of 2019, Youbao had 20,000 "affiliated point operators," and by the end of 2021, there were still 18,000. The reasons for the attrition include the impact of the epidemic, operating pressure, and Youbao's own initiative. From the results, Youbao began to heavily promote the partner model from 2020. This partner is not the partner in the broad sense. According to the prospectus, partners are responsible for finding points, bearing the costs of point development, leasing, and facilities, and receiving a commission from the total transaction amount of goods. Regarding this model, Zhuang Shuai, a retail e-commerce industry expert and founder of Bailian Consulting, said, This can be considered a franchise model, but because point operations are still handled by Youbao, the definition is vague, so the term "partner" is used. This model is common in the catering industry. On one hand, Youbao increased partner points; on the other hand, it accelerated the reduction of self-operated points. The prospectus shows that at the beginning of 2019, Youbao had 27,700 self-operated points. In the past three years, it has been reducing at an average rate of nearly 5,000 points per year. By the end of 2021, of Youbao's 102,700 points, 13,700 were direct-operated; partner points numbered 71,500, accounting for nearly 70%; in addition, 17,600 franchisee points were retained. From 2019 to 2021, Youbao actually added a net 75,600 points, equivalent to the total number of partner points. From 2019 to 2021, the number of points under different models Source / Prospectus The number of points is linked to revenue from selling goods. Therefore, in 2021, of Youbao's 1.92 billion yuan in goods sales revenue, nearly 60%, or 1.48 billion, came from partner points. Under the seamless switch from the franchise model to the partner model, Youbao retained existing points and expanded the market. In terms of total transaction amount and network scale, Youbao is now China's largest unmanned retail distributor, with 81.3% of its points concentrated in first-tier, new first-tier, and second-tier cities. Advertisers can't be relied on Previously, the outside world's perception of Youbao was that it made money from advertising. However, during the recovery process, Youbao's revenue structure has undergone some changes. In short, selling goods is the key, and it is less dependent on advertising. The industry valued Youbao's advertising model, on one hand, because the product retail business was still losing money while advertising was almost pure profit. Many people first encountered Youbao's vending machines in public transportation with large and stable foot traffic. The machines themselves are natural advertising spaces, following the same logic as Focus Media's elevator ads, and even having advantages. One advantage is more advertising space. A vending machine has more advertising resources than imagined because it has a display screen and is intelligently connected. The body, display screen, product display area, and mobile payment page can all display ads. Another advantage is being closer to customers. Wang Bin once gave an example: PepsiCo stimulated direct purchases by advertising on Youbao's vending machine screens. The charging method can be based on playback frequency or connected to the product track to charge placement fees. An advertising company executive told Kailuobo Finance that advertising is a story that all self-service retail machine brands tell. In the early days, 60-70% of Youbao's revenue came from advertising. But as more carriers emerged, its advertising model was considered passive and limited in effectiveness by clients. Coupled with the impact of the epidemic in the past two years, advertisers have begun to "flee." And Youbao is also "returning" to its main business of selling goods through vending machines. In the past three years, the proportion of revenue from advertising and other sources has decreased year by year, from 20.1% to 9.3%, while the contribution of goods sales revenue has continued to rise, from 56.5% to 71.6%. Throughout its expansion, Youbao has taken many detours. Including the aforementioned mini KTV business. The prospectus shows that the number of mini KTV points dropped from 6,410 to 4,097, a decrease of nearly 40%, and revenue fell from 180 million yuan in 2019 to 33.65 million yuan, a decrease of 80%, with current revenue accounting for only 1.2%. In Wang Bin's early model concept, not only was advertising more important than selling goods, but there was also an e-commerce dream. "In the future, only 20% of Youbao's profits will come from vending machine retail, 30% from advertising, and 50% from e-commerce." The "e-commerce" he referred to is an offline-to-online e-commerce model, where users enter third-party e-commerce platforms from the Youbao mobile client to purchase goods. After purchasing, users can have Youbao's logistics personnel place the goods in the cabinet-style vending machine closest to them. This model has basically been disproven. In recent years, Youbao has given the outside world an impression of being an "acquisition maniac," investing in companies including software developers and smart vending machine operators. However, Youbao, which is keen on buying, has not yet seen returns. The prospectus shows that from 2019 to 2021, Youbao's investment losses accounted for using the equity method were 7.179 million, 3.472 million, and 4.092 million yuan, respectively. In this sprint to the Hong Kong stock market, Youbao also plans to use the raised funds to invest in and acquire potential companies in the unmanned retail industry. Vending machines are a very special industry. Bao Yuezhong, a new retail expert, analyzed for Kailuobo Finance that Youbao's biggest advantage is that it developed early, entered high-speed rail stations, subway stations, and other public transportation networks very early, and after ten years of layout, it has become the industry leader. But he believes that Youbao's business model and operating model are not complex, and the barriers are not high. There will definitely be new players and new forces in the future. Information in the prospectus can serve as evidence. On one hand, Youbao's payment services and smart vending machine production are both provided by third-party companies. On the other hand, in terms of market share, Youbao's competitors are not players in unmanned retail. Source / Prospectus In 2021, by total transaction amount of goods, the market share of the top five participants in China's unmanned retail industry was 15.2%. Among them, Youbao accounted for about 7.4% of the market share. Dong Bo analyzed that based on the industry, headquarters city, and market share, it can be inferred that Company A is Nongfu Spring and Company B is SF Express, both of which are very strong competitors for Youbao. Entering 2022, the unmanned retail trend has shown signs of rebounding. Feng e Zushi, an unmanned retail operator incubated by SF, received financing; Miss Fresh acquired the smart convenience store "Zailouxia"; in addition, leading beverage companies are also actively laying out. Youbao, which is once again challenging the Hong Kong Stock Exchange, not only has more competitors and a changed model, but also has not brought a new story. Many interviewees are sweating for this former "first vending machine stock." *Title image from Visual China. At the request of the interviewee, Dong Bo is a pseudonym. Source: Kailuobo Finance (ID: kaiboluocaijing) -END-