Analysis of US Stock IPOs | Weibo Bus: Strong recovery in the tourism industry, but trapped in perennial losses, with a sudden drop in cash flow "fog"

As the adverse effects of the epidemic dissipate, the strong recovery of the tourism industry has become an unspoken consensus for everyone.

According to relevant data, in 2023, the Chinese tourism market has shown a significant recovery momentum, with domestic tourist numbers reaching 489,100, a year-on-year increase of 93.3%. Domestic tourism revenue (total tourism consumption) reached 4.91 trillion yuan, a year-on-year increase of 140.3%, reversing the downturn trend since 2020. In addition, compared to the pre-epidemic levels in 2019, tourism revenue in 2023 has recovered to 85.69%, further narrowing the gap.

In this recovery context, it has also provided many development opportunities for the segmented markets within the tourism industry.

However, surprisingly, Weibus, which focuses on charter and tour group services, has chosen to "shrink" its IPO.

On June 27, Weibus (WETO.US) announced a reduction in the IPO size. The company now plans to raise $17 million by issuing 3.8 million shares at a price of $4 to $5 per share. The company had previously applied to issue 4 million shares at a price of $4 to $6 per share. Based on the revised mid-price calculation, Weibus' fundraising amount will be reduced by 16% from the previous expectation, with a market value of approximately $174 million.

The company had submitted a confidential prospectus to the SEC in February 2023 and announced a reduction in the IPO size a year later. The change in fundraising scale may indirectly indicate a lukewarm response to Weibus's US listing. By deeply analyzing the fundamentals of Weibus based on the prospectus, some answers may be found.

Under a Diversified Business Landscape, Still Trapped in "Loss Fog"

According to the Securities Times APP, Weibus is a digital travel customization platform created by Zhejiang Youba Technology Co., Ltd., providing services such as intelligent vehicle hardware, intelligent cloud dispatch, travel database, cloud security, etc. The platform carefully selects multiple star-rated transportation companies and provides one-stop travel solutions based on scenarios such as campuses, tourism, and commuting through artificial intelligence and big data.

In 2019, Weibus officially launched its business charter service, followed by the launch of the Smart School Bus Manager System and tourism business in 2020, and integration into the Hangzhou City Brain; in 2021, Weibus launched the Enterprise Edition charter system and the global customized charter section; in mid-2022, Weibus established an operating company in the United States, launched the global charter and customized travel platform Wetour, launched intercity customized lines, and obtained the Hangzhou City online car operation permit.

To date, Weibus has developed into a one-stop comprehensive travel service platform covering various diversified businesses such as commuting, school pick-up, intercity express buses, hub connections, airport shuttles, and direct tourist buses. In the Chinese market, Weibus has over 11,000 dispatchable vehicles to meet the needs of customers in different scenarios. In markets outside China, the company has around 10,000 drivers providing customized charter and bus services From the perspective of revenue performance, Microbus has shown a stable growth trend in the past two years, possibly benefiting from the strong recovery of the tourism industry.

According to the prospectus, for the fiscal years 2022 and 2023 (annual as of June 30), the company achieved revenues of 130 million yuan and 154 million yuan respectively, with a year-on-year growth of 18.7%. Among them, package tour services saw the most significant growth, with a 68.9% year-on-year revenue increase in 2023, accounting for 44% of the revenue; customized charter services saw a slight increase of 1.6% year-on-year, accounting for 50% of the revenue; while commuter bus services saw a 51.5% year-on-year decline, fortunately accounting for the smallest share of 7%.

In terms of profitability, despite the growing revenue, Microbus has been operating at a loss in the past two years.

According to the data in the prospectus, for the fiscal years 2022 and 2023 (annual as of June 30), the company's net losses were 6.5819 million yuan and 17.3824 million yuan respectively, with the loss amount further expanding.

Upon closer examination, the further expansion of Microbus's net losses may be due to a significant increase in selling expenses and general and administrative expenses: for the fiscal year 2023 (annual as of June 30), the company's general and administrative expenses were 10.4283 million yuan, a 57.7% year-on-year increase, and sales and marketing expenses were 14.6569 million yuan, a 254.8% year-on-year increase.

Additionally, the company's gross profit margin is not high and is on a downward trend. During the reporting period, Microbus's gross profit margins were 6.8% and 5.3% respectively. The company stated that the decrease in gross profit margin was mainly due to the decline in the proportion of gross profit from commuter bus services, which had the highest gross profit margin among all revenue sources. It is worth mentioning that the company's strategy of rapidly seizing the market through customized charter and group tour businesses at low prices also contributed to this.

From a revenue perspective, Microbus's "volume for price" strategy has undoubtedly achieved significant results. However, looking at the gross profit margin, the further decline in the gross profit margin of commuter bus services, which have a high gross profit margin, clearly affects the company's profitability.

Poor profitability has evidently led to further tightening of Microbus's cash flow: as of June 30, 2023, and December 31, 2023, the company's cash and cash equivalents were 2.1512 million US dollars (a 25.24% year-on-year decrease) and 3.0076 million yuan (a 68% year-on-year decrease) respectively.

With such fundamental performance, in order for Microbus to further enrich its diversified business landscape and seize the market, it may still need to draw external energy.

Resilient Market and Crowded Track "Coexistence"

From the perspective of industry development support, the industry in which Microbus is currently positioned is mainly characterized by "coexistence of opportunities and challenges".

In recent years, the private group market has shown a strong growth trend, and it is expected to maintain a high growth rate in the coming years. With the continuous expansion of the Chinese outbound tourism market and the rise of the middle and high-end consumer groups, private groups are increasingly favored for their personalized and high-quality service characteristics. According to the "2023 Annual Tourism Consumption Report", private car tours accounted for 24% of the total number of people booking travel products, with private car tour revenue reaching 1.18 trillion yuan in 2023, and is expected to increase to 1.45 trillion yuan by 2028 In addition, in the overseas market, the estimated market size of the private group tours for overseas Chinese in 2023 is about 8.7 billion US dollars. With the continuous growth of Chinese tourists' outbound travel demand, the demand for tourism products that provide Chinese services is also increasing. Therefore, the market for private group tours for overseas Chinese is expected to maintain rapid growth in the coming years. By 2028, the market size is expected to reach approximately 18.1 billion US dollars.

For WeBus, this is one side of the "coin", and obviously, this is also the main reason for its low-price strategy to seize market share in customized charter and group travel.

However, delving into its prospectus, it is also evident that WeBus faces "challenges" in a fiercely competitive market environment.

Specifically, there are about hundreds of online shared mobility service platforms in China, and the overall online shared mobility service market presents a highly competitive and fragmented landscape. According to the prospectus disclosed earlier, as of the first half of 2022, WeBus ranked second in the market, and the total revenue of the top five online collective mobility service platforms was only 232.6 million yuan, indicating the high degree of market fragmentation.

Furthermore, in the U.S. market, WeBus also faces competition from local established competitors. Greyhound, a long-distance bus supplier in the U.S. with a history of over 100 years, was acquired by the German transportation application platform FlixMobility in October 2021, further penetrating the U.S. market.

In this regard, WeBus stated in its risk disclosure that the company needs to compete with a large number of companies of different scales, including branches or subsidiaries of large companies, which may have more financial resources and a larger customer base than the company. If the competitive pressure leads to the company losing market share or a decrease in profit margins, the company's business, financial condition, and operating performance may be significantly adversely affected.

In addition, the relatively high customer concentration also indirectly indicates that WeBus's ability to expand its customer base needs improvement.

According to the prospectus, for the fiscal years ended June 30, 2022, and June 30, 2023, the top ten customers accounted for approximately 44% and 43% of the company's total revenue, respectively. For the six months ended December 31, 2022, and December 31, 2023, the top ten customers accounted for approximately 43% and 45% of the company's total revenue, respectively. The high customer concentration indicates that a limited number of customers contribute a significant portion of its revenue.

In conclusion, it may not be surprising that WeBus chose to "shrink" its IPO this time. On the one hand, there are fundamental influences such as perennial losses and a sharp drop in cash flow, and on the other hand, it is the industry shackles of "opportunities and challenges coexisting". Whether WeBus can turn around its current unfavorable situation through the IPO remains to be seen