US Stock IPO Preview | Highly dependent on upstream and downstream, marketing service "little brother" Interstellar Fashion also wants to go public

With the rapid development and popularization of the Internet, the network has become the main channel for people to access information. Online promotion has also become an important means for enterprises to communicate their brands and acquire customers. In the context of information overload, how to stand out in a world full of advertisements, reap benefits, and conduct precise content marketing has become crucial. Against this backdrop, providers of comprehensive and diversified content marketing solutions have also risen rapidly.

This has directly fueled the enthusiasm of related companies to impact the capital market. According to the Wise Finance APP, Star Fashion Culture Holdings Limited, a content marketing and precision marketing service provider, has officially submitted a public version of its prospectus to the SEC, applying to list on NASDAQ under the code "STFS". It is worth noting that the company had already submitted a confidential application to the SEC on December 15, 2023.

For this US listing, the company plans to issue 3 million shares at a price of $4 to $5 per share, raising $14 million. Based on the midpoint of the proposed range, Star Fashion Culture's market value will reach $59 million.

So, how is the quality of Star Fashion Culture, and will it win favor on NASDAQ?

Stable revenue growth, fluctuating gross profit margin

According to the prospectus, Star Fashion Culture was established in 2015 as a company specializing in content marketing and precision marketing services. The company provides services focused on marketing activity planning and execution, offline advertising services, and online precision marketing services. Through capabilities in project planning, design, operation, and execution, the company helps clients enhance the effectiveness of marketing activities and brand value. Additionally, the company has rich IP image authorization resources that can be licensed to enterprises to empower their brands, thereby enhancing their brand influence and visibility.

In terms of performance, the company's revenue performance has continued to improve. As of the end of the 2022 fiscal year ending June 30, the 2023 fiscal year, and the first half of the 2024 fiscal year ending December 31, the company's revenues reached RMB 35.3702 million, RMB 69.0394 million, and RMB 53.4118 million, respectively.

Specifically, the company's business can be divided into marketing activity planning and execution, offline advertising services, and online precision marketing services.

Among them, marketing activity planning and execution is the company's main source of revenue. In this business, the company deploys a wide range of content marketing matrices through online short videos and various offline activities, including music festivals, fashion week events, city marathons, and various exhibitions and forums, to help enterprises achieve comprehensive online and offline communication. Revenue from this business during the reporting period was RMB 19.4327 million, RMB 55.5903 million, and RMB 30.2207 million, with revenue proportions of 54.9%, 80.5%, and 56.6%, respectively. It is worth noting that the decline in revenue and revenue proportion in the first half of the 2024 fiscal year was mainly due to reduced demand from event organizers At the same time, the offline advertising services, which used to be the company's second largest business, also experienced a significant decline in revenue and revenue contribution during the reporting period. It is reported that in this business, the company provides outdoor advertising solutions to customers and customizes marketing strategies according to their requirements. During the reporting period, the revenue from this business was 12.9059 million yuan, 7.3362 million yuan, and 2.9547 million yuan, with revenue contributions of 36.5%, 10.6%, and 5.5% respectively. The company explained that this was due to changes in the company's business strategy.

With the fluctuating performance of the above two major businesses, online precision marketing services have become the most eye-catching business for the company recently. Zhītōng Cáijīng APP noted that in this business, the company customizes marketing strategies according to customer requirements. It can provide content as an advertising medium and integrate advertisements into various activities and videos for marketing purposes. By utilizing various online media channels including iQiyi, Xigua Video, Weibo, and WeChat, the company effectively promotes marketing materials to customers' target markets.

During the reporting period, the revenue from this business was 3.0316 million yuan, 6.1129 million yuan, and 20.2364 million yuan, with revenue contributions of 8.6%, 8.9%, and 37.9% respectively. According to the prospectus, since the first half of the 2024 fiscal year, the company has focused its advertising business on online channels, attracting a total of 13 new customers during the period, which drove a significant increase in revenue for this business.

Although revenue has shown positive development, the company's profitability has exhibited a downward trend. During the reporting period, the company's gross profit margins were 25.3%, 28.3%, and 22.2% respectively. The company admitted that since the 2024 fiscal year, it has sacrificed some profits to further expand the online precision marketing service market. However, benefiting from the substantial growth in revenue, the company's net profit performance still achieved growth. The company's net profits during the reporting period were 2.4864 million yuan, 7.8178 million yuan, and 7.8642 million yuan.

Industry Growth Expected to Accelerate, Upstream and Downstream "Dependency" Difficult to Resolve

Looking at the industry outlook, the future of the content marketing market is highly anticipated.

According to a Frost & Sullivan report, the market size of content marketing has experienced fluctuations in the past five years. Specifically, from 2017 to 2019, due to the continuous growth of cultural and entertainment consumption in China, the overall content marketing market experienced stable growth. However, in 2020, the market size declined due to the outbreak of the epidemic. With effective measures taken by the government, the impact of the epidemic gradually stabilized in 2021, leading to a gradual rebound in the market. But the re-emergence of the epidemic in 2022 caused another decline in the content marketing market. Therefore, the market size of content marketing grew from 286.3 billion yuan in 2017 to 312 billion yuan in 2022, with a compound annual growth rate of only 1.7%. However, with the gradual relaxation of epidemic prevention and control, the iteration of traditional marketing activity planning, empowerment of new technologies, and the prosperity of the Chinese economy, the market is expected to rapidly recover. By 2027, the market size of content marketing in China is expected to reach 419.1 billion yuan, with a five-year compound annual growth rate of 6.1%

As the potential of the content marketing industry is gradually being explored, market competition is becoming increasingly fierce. Frost & Sullivan stated that the concentration of this market in China is relatively dispersed, as competition arising from various requirements of downstream customers (such as promotional purposes, target customer types, regional coverage, etc.) leads to differentiated competition in terms of price, service, and creativity among competitors.

Facing such a scattered industry landscape, Star Fashion is consolidating its industry position through deep integration with upstream and downstream partners.

Zhito Finance App noted that the company relies on major suppliers to obtain some of its products. In the 2022 and 2023 fiscal years, the top five suppliers accounted for as high as 79.9% and 74.6% of the revenue cost ratio, respectively. By the first half of the 2024 fiscal year, this figure further increased to 83.8%. Although the company has stated that it has established long-term stable relationships with large platform companies, suppliers, and logistics companies, suppliers may modify or terminate agreements, which could impact the company's operations.

On the downstream customer side, the company admits its heavy reliance on key customers. In the 2023 fiscal year, the top four customers contributed 61% of the company's revenue, while in the 2022 fiscal year, the top three customers contributed 76% of the revenue. Therefore, maintaining the stability of existing customers and continuously developing new customers is crucial for the company's future development. However, it is important to note that the company has not signed long-term agreements with key customers, and service agreements with these customers are project-based. Therefore, the company cannot guarantee the continuity of revenue from key customers. Additionally, due to intense industry competition, the company has very limited bargaining power with customers.

Overall, against the backdrop of industry fluctuations, Star Fashion has achieved significant growth in performance through active development of precise online marketing services. However, as market competition intensifies in the future, how can Star Fashion, with its continued dependence on upstream and downstream partners, stand out from the fragmented competitive landscape? While the company has stated that the funds raised from this IPO will be used to create derivative works, develop intellectual property, and engage in industry mergers and acquisitions, it may not be easy for Star Fashion, without outstanding advantages, to sustain stable revenue and net profit growth