The multiple benefits of the WeChat ecosystem drive stock prices up, and YOUZAN aims to leverage AI to return to a growth path?

Multiple positive news from the WeChat ecosystem have been released in succession, driving the stock price of YOUZAN (08083) to show a significant increase. On December 19, the company's stock price closed up more than 18%, but it still remained below HKD 1, with the latest stock price as of the 24th being HKD 0.138.

Six years ago, when it successfully went public through a backdoor listing, YOUZAN was known as the "first stock of the WeChat ecosystem." During the booming era of micro-businesses, YOUZAN launched the WeChat-based e-commerce platform "YOUZAN WeChat Mall" as a retail SaaS service provider, becoming one of the first companies to benefit from the internet boom.

However, as the online retail landscape rapidly changed, consumer purchasing behavior gradually shifted from WeChat to short videos, live streaming, community group buying, and other areas. Additionally, platforms and chain enterprises have been developing their own e-commerce tools such as WeChat Stores, leading to a decline in both the stock price and performance of YOUZAN.

At its peak, YOUZAN's market value reached over HKD 70 billion, but it currently stands at just over HKD 4 billion, and its stock price has long been below HKD 1, categorizing it as a "penny stock."

Recently, the WeChat team announced that the WeChat Store has officially launched a gray-scale test for the "gift-giving" feature, and several informed sources revealed that Apple is in talks with Tencent and ByteDance to integrate their artificial intelligence models into iPhones sold in China.

Now that YOUZAN's stock price has shown unusual movements, does this indicate that the company has welcomed a growth opportunity due to a change in valuation logic?

Adjusted Profit Improvement, Just Because of "Tightening the Belt"?

From the recent financial report, it can be seen that in the first half of this year, YOUZAN's revenue showed a significant decline, and its profit turned from positive to negative.

Specifically, for the six months ending June 30, 2024, the company achieved revenue of approximately RMB 686 million, a year-on-year decrease of 5.2%; the loss attributable to the parent company was RMB 17.224 million, a significant decline compared to the profit of RMB 18.114 million in the same period last year. The company stated that the decrease in revenue was mainly due to a reduction in subscription solution revenue, which was partially offset by an increase in merchant solution revenue.

However, optimistically, the company's adjusted EBITDA for the first half of the year was approximately RMB 51.22 million, exceeding the total for the entire year of 2023, with a profit margin rising to 7.5%. So far, YOUZAN has achieved operational profitability for seven consecutive quarters.

During the reporting period, YOUZAN's core operational data showed steady growth. According to the financial report, in the first half of the year, the GMV generated by merchants through YOUZAN's solutions was approximately RMB 49.9 billion, a year-on-year increase of about 2%; the average sales per merchant in the first half of 2024 was approximately RMB 840,000, a year-on-year increase of about 25%.

At the same time, the number of paid merchants has declined. In the first half of 2024, the number of new paid merchants was 9,116; the number of existing paid merchants was 59,541, a significant decrease compared to 72,621 in the first half of 2023 Thanks to the continuous progress of the new retail business and the achievements in focusing on developing medium and large customers, in the first half of the year, YOUZAN's GMV from store SaaS business was approximately RMB 25 billion, accounting for about 50%, an increase of 7% year-on-year.

A deeper analysis of the financial data reveals that the company's adjusted profit has improved, not due to revenue growth, but mainly from a decrease in expenses.

In terms of revenue structure, the subscription solutions revenue in the first half of the year was approximately RMB 377 million, a year-on-year decrease of 10.6%, while the merchant solutions revenue was approximately RMB 307 million, only a slight increase of 2.2%. The growth of the latter business could not compensate for the overall revenue decline.

During the reporting period, YOUZAN's sales expenses were RMB 265.8 million, a decrease of about RMB 65.3 million compared to the same period last year, and other expenses also decreased by RMB 3.1 million to RMB 115.5 million, showing a year-on-year decline.

According to Zhitong Finance APP, in fact, YOUZAN has been optimizing its organizational structure for several years and has achieved significant results in cost control. Compared to RMB 288 million in sales costs in the first half of 2022, the company's sales costs have shrunk to RMB 217 million in the first half of this year, significantly reducing the proportion of revenue; the number of employees is 1,582, which has been reduced by more than half compared to over 4,000 in mid-2021.

Using layoffs and cost-cutting measures to "squeeze profits" is clearly not sustainable in the long term. So, does YOUZAN have any new highlights in terms of "increasing revenue"?

Betting on AI as a New Growth Point?

In recent years, affected by multiple factors such as slowing macroeconomic growth and intensified industry competition, the SaaS industry has struggled to escape the predicament of "not making money."

According to Ernst & Young's "2023-2024 Financial Performance Review and Future Outlook of Chinese Enterprise-level SaaS Listed Companies," the gross profit margin of Chinese enterprise-level SaaS companies has generally declined since 2022. Among them, vertical SaaS companies that focus on specific industries often form a strong competitive advantage and achieve higher gross profit margins once their products reach a certain level of refinement, while general SaaS companies face more intense competition and have relatively lower average gross profit margins.

Behind the difficulty in profitability are numerous challenges faced by many SaaS companies: continuous loss of users from WeChat to other e-commerce platforms, price competition brought about by intensified competition, lack of competitive barriers, and the "cooling" of private traffic.

However, as AI applications begin to take root in various industries, the SaaS industry has also seen new growth possibilities. For instance, YOUZAN has launched the AI application "Jia Wo Intelligent," driven by large models. As the underlying model for the intelligentization of YOUZAN's product system, Jia Wo Intelligent can support the intelligentization of all product lines, including YOUZAN Micro Mall, YOUZAN Store, YOUZAN CRM, YOUZAN Intelligent Guide, YOUZAN Enterprise WeChat Assistant, YOUZAN Beauty Industry, and Group Organizations.

According to Zhitong Finance APP, after multiple upgrades, "Jia Wo Intelligent" has now expanded its functionality into five major areas, including marketing content creation, functional usage assistance, data query analysis, automatic task execution, and business consulting advice At the recent 12th anniversary conference of YOUZAN, founder and CEO Bai Ya launched a new AI product, the intelligent agent, and a fully managed service. The YOUZAN intelligent agent generates business opportunity guidance, intelligent management, marketing expertise, operational reports, smart outfit recommendations, and intelligent sales; the fully managed service includes short video and graphic marketing, fan interaction, product inventory, order fulfillment, review management, and pre-sale and after-sale services for Xiaohongshu and WeChat video accounts and small stores.

Bai Ya believes that with the help of AI capabilities, the new "AI + SaaS" can greatly lower the usage threshold of SaaS, resulting in more than tenfold efficiency improvements and more than tenfold enhancements in customer success.

However, the road for YOUZAN in AI may not be so easy. It is well known that large AI models require significant investments in computing power and data, which will bring high trial-and-error costs to enterprises. From the financial report, YOUZAN's R&D expenditure in the first half of recent years was only 93.828 million yuan, a decrease of about 12% compared to the same period last year, accounting for 13.68% of revenue, which is at a relatively low level.

In addition, some opinions suggest that in an era of consumption downgrade, merchants using SaaS software are competing more on cost-effectiveness, and as a tool, SaaS may have limited conversion capabilities.

It can be seen that despite the AI boost, YOUZAN's path still faces numerous challenges. Given the poor profitability and shrinking R&D expenditure, how much of YOUZAN's AI "halo" can be converted into tangible performance growth remains to be seen over time