No increase in revenue but no profit in the first half of the year, can Dong Yuhui save EAST BUY?

Unexpectedly, EAST BUY (01797), which has experienced a resurgence, has fallen into the dilemma of "increased revenue but not increased profit".

According to the financial report data, in the first half of 2023, EAST BUY achieved a revenue of 2.795 billion yuan, a year-on-year increase of 34.4%; the net profit attributable to the company's shareholders was 249 million yuan, a year-on-year decrease of 57.4%; the adjusted EBITDA was 595 million yuan, a year-on-year decrease of 13.3%.

This is undoubtedly a disappointing report card for the secondary market. After the announcement of the financial report, the stock price of EAST BUY continued to plummet, with a decrease of 8.33% and 8.26% on January 25th and 26th respectively. As of now, the company's stock price is 22.20 Hong Kong dollars, with a total market value of 22.567 billion Hong Kong dollars.

In 2023, Dong Yuhui is undoubtedly a rising star in the live streaming industry. With his rich knowledge and humorous live streaming style, he has brought EAST BUY to fame. EAST BUY has also become a hot topic in the live e-commerce industry. Therefore, the outside world naturally thought that EAST BUY, which has returned to the spotlight, would make a lot of money. Who would have thought that it is still in the situation of "increased revenue but not increased profit".

So, where did the money earned by EAST BUY go, and how will the company's future growth be?

The money earned is not enough to "recruit soldiers and buy horses"

Regarding the dilemma of "increased revenue but not increased profit", EAST BUY listed several points in the financial report. On the one hand, it is due to the significant growth of the company's business, which has led to an increase in the inventory and transportation costs of self-operated products. On the other hand, it is due to the company's expansion of the scale of self-operated product selection, recruitment of more employees for live streaming business, increased investment in sales and marketing expenses, and the significant increase in cost due to the development and launch of the "EAST BUY APP".

In short, the money earned by EAST BUY is not enough for the company to "recruit soldiers and buy horses". To learn more, let's further observe through its financial report.

Zhitong App learned that EAST BUY's main business includes self-operated products and live e-commerce, university education business, and education institution clients. During the period, only the self-operated products and live e-commerce and university education business maintained a double-digit growth trend, while the education institution business gradually declined due to the implementation of the "dual reduction policy".

Specifically, in the first half of 2023, EAST BUY's total GMV for product sales was 5.7 billion yuan, and the total number of paid orders for third-party products and self-operated products on Douyin was 59.6 million. As of November 30, 2023, the number of self-operated products of EAST BUY has exceeded 264, and the revenue brought by self-operated products is about 1.9 billion yuan. EAST BUY's self-operated products have accelerated their development and have become an important pillar of the company's revenue. As of November 30, 2023, EAST BUY has more than 264 self-operated products, generating approximately 1.9 billion yuan in revenue. Yin Qiang, the CFO of EAST BUY, said, "During the reporting period, the company implemented a series of new initiatives to promote the development of self-operated products and enhance our service capabilities to consumers, resulting in steady revenue growth."

In addition, the company's higher education division achieved revenue of 366 million yuan during the period, a year-on-year increase of 23.9%. The number of paying students was 225,000, a decrease of 29% compared to the same period last year. The revenue from educational institution clients was approximately 17.98 million yuan, a decrease of 6.2%, which was due to adjustments in the business of the institutional client division.

With the decline of the education business, EAST BUY recently sold its entire education business to its parent company, New Oriental, for 1.5 billion yuan. After the sale is completed, EAST BUY will become a pure self-operated and live-streaming e-commerce company. As of November 30, 2023, EAST BUY has a total of 3.5 billion yuan in cash and cash equivalents, providing ample resources for the company's future development.

Although EAST BUY has lightened its burden and transformed into a pure self-operated and live-streaming e-commerce company, it does not mean that there are no new initiatives.

In the interim report, EAST BUY revealed more details. According to the plan, EAST BUY will increase investment in supply chain construction, including expanding factories and establishing front warehouses in first-tier cities. Enriching the product portfolio requires continuous expansion of SKUs and efforts to create popular products to break through the existing product cycle.

Specifically, in terms of raw material quality control, EAST BUY has installed a closed-circuit television monitoring system to monitor the raw material inventory and core feeding process. At the same time, a "one-shot" video shooting mode has been set up to ensure food safety and transparency. In terms of supply chain management, EAST BUY has also achieved vertical expansion in 2023. With its brand influence and growth rate advantages, the company has established partnerships with top suppliers and expanded its warehousing network in Qingdao, Kunshan, and Xinjiang.

In addition, during the reporting period, EAST BUY continued to enhance its membership system. The independent app launched by the company includes functions such as paid membership, points coupons, cultural and tourism products, and live streaming rooms. It greatly enhances user engagement and stickiness, optimizes the shopping experience, and is considered one of the key driving forces for the company's growth.

Driven by the aforementioned investments, the team size of EAST BUY's self-operated products and live-streaming e-commerce has reached 1,587, including 643 members in the supply chain and product teams.

In addition to the expansion initiatives mentioned above, EAST BUY is also continuously recruiting talents. As of November 30, 2023, the total number of employees in the self-operated products and live-streaming e-commerce teams reached 1,587, including 643 members in the supply chain and product teams.

With continuous investments, EAST BUY's expenses have also been substantial. In the first half of 2023, the company's total operating revenue and costs were 1.7 billion yuan, a year-on-year increase of 55%, mainly due to the significant growth of the business, resulting in increased inventory and transportation costs of self-operated products. Sales and marketing expenses were 560 million yuan, a year-on-year increase of 145.6%, mainly due to the increased recruitment and personnel costs of self-operated products and live broadcasting business operations. Research and development expenses were 75.5 million yuan, a year-on-year increase of 56.5%, mainly due to increased employee costs. Administrative expenses were 143 million yuan, a year-on-year increase of 129.6%, mainly due to increased share-based payment expenses.

As a "rising star" in the e-commerce live streaming industry, EAST BUY, which has transformed from an educational institution, naturally wants to seize the opportunities of the times and develop rapidly. Therefore, it is not surprising that the company's aggressive recruitment and expansion strategy has led to increased revenue but not increased profits.

Can they replicate the success of Dong Yuhui?

The rise of EAST BUY is a result of the "painful period" in the e-commerce industry.

2023 is the most "complex" year for the e-commerce industry. On the one hand, the lukewarm response to the 618 and Double Eleven shopping festivals reflects the bottleneck period of slowing growth in the e-commerce industry. On the other hand, the live streaming e-commerce industry has repeatedly encountered public opinion crises. For example, Li Jiaqi's remark "Where is it expensive?" in a live broadcast was strongly resisted by consumers, which also reflects the development problems of the live streaming e-commerce industry after a period of rapid growth.

This also implies that the future development of the live streaming e-commerce industry needs to be more standardized and sustainable.

For example, after the events of the end of 2021, such as Wei Ya and Xue Li being involved in tax evasion, and major social media accounts and Taobao stores being shut down, people have realized the negative impact of excessive reliance on individual anchors in live streaming rooms. As a result, there is a clear trend of decentralization among the top anchors in the live streaming e-commerce industry, and the focus of platforms and MCN institutions is gradually shifting towards the "majority". For example, Luo Yonghao's "Make Friends" live streaming room has achieved "de-Luo Yonghao-ization". On the one hand, it adapts to the changes in Douyin's traffic distribution and creates a live streaming matrix. On the other hand, it shifts from content-driven to product-driven, transforming personal IP effects into channel IP.

EAST BUY is an emerging player at this time. On June 10, 2022, in the EAST BUY live streaming room, Dong Yuhui, a former high school English teacher at New Oriental, jokingly compared his face to the Terracotta Warriors while explaining steak in English and writing English words and phrases on a whiteboard. With its "bilingual" live streaming and interesting and informative content, the EAST BUY live streaming platform quickly gained popularity and accumulated a large number of loyal fans.

After Dong Yuhui quickly brought fame to EAST BUY, internal conflicts within the company also began to surface.

On December 6, 2023, the "Little Composition" incident involving EAST BUY was exposed. At that time, the official EAST BUY account posted a comment stating that every little composition read by Dong Yuhui in the live broadcast was co-created by the team behind him, not solely his own work. This statement caused dissatisfaction among Dong Yuhui's fans, who believed that he had been betrayed. For a while, the implicit friction between Dong Yuhui and EAST BUY became apparent. Afterwards, EAST BUY also faced significant personnel changes internally. On December 16th, Sun Dongxu was removed from his position as Executive Director and CEO of EAST BUY, and Yu Minhong took over. At the same time, New Oriental issued appointment letters, and Dong Yuhui became a senior partner of EAST BUY, Chairman's Cultural Assistant of New Oriental Education & Technology Group, and Vice President of New Oriental Culture & Tourism Group.

On January 9th, 2024, "Walking with Hui" started on time, attracting attention from netizens. 20 minutes after the live broadcast started, the number of likes in the "Walking with Hui" live room had exceeded 200 million, firmly ranking first on the Douyin live popularity list, becoming another popular live account under EAST BUY.

Since Yu Minhong and Dong Yuhui appeared together in the Douyin live room for live streaming and sales on December 18th, 2023, the EAST BUY account has regained its 30 million fan base.

As the saying goes, the egg seems to be broken from the outside, but it is actually broken from the inside. After experiencing this small incident, EAST BUY has successfully incubated another popular account, achieving the effect of 1+1>2.

Based on this, it can be seen that although Dong Yuhui cannot be replicated, accounts related to Dong Yuhui can undoubtedly be replicated, which is also the wisdom of EAST BUY.

However, it should be noted that the live streaming and product categories of "Walking with Hui" are similar to those of the main EAST BUY account. Whether the traffic of the main EAST BUY account will be diverted in the future remains unknown. In addition, according to industry norms, these types of new account live broadcasts are often the first data and performance "samples", and the key factors for the continued popularity of the account are the anchor team and product selection capabilities in the later stage.