US Stock IPO Analysis | Aipin Freelancer aims to become the "number one stock of crowdsourcing platforms", with a market share 5.5% less than Zhu Bajie Network

In 2022, the largest crowdsourcing platform in China, Zhu Bajie Network, revealed its intention to list on the Hong Kong Stock Exchange, but unfortunately, it failed to do so after three attempts.

On July 2, 2024, Yiping Freelancer, which ranks second only to Zhu Bajie Network in market share, announced the terms of its initial public offering (IPO) for the first time. Specifically, this company based in Xiamen, China, plans to issue 1.5 million shares at a price of $7 to $8 per share, aiming to raise a total of $11 million. Based on the midpoint of this price range, Yiping Freelancer's market value is estimated to be $155 million. Previously, the company had submitted an IPO in 2023, aiming to raise $30 million.

Internet crowdsourcing, often mentioned in conjunction with the sharing economy, is a niche and imaginative track. Zhu Bajie Network, Yiping Freelancer, and Jiefanghao are the top three players in the industry, but the title of "the first stock of crowdsourcing platform" in the secondary market is still up in the air.

Now, with the terms of Yiping Freelancer's (EPWK.US) IPO, does this mean that the "first stock of crowdsourcing platform" is really coming?

Turning losses around, but debt levels remain high

It is reported that Yiping Freelancer launched the crowdsourcing platform EPWKVIE in 2011, covering seven categories of operations including design, software development, marketing, business writing, interior decoration, life services, and business services, involving over 300 projects including logo design, animation design, industrial design, website development, software development, copywriting, marketing promotion, and decoration design.

By the end of 2023, the company had accumulated 8.59 million registered buyers and 16.68 million registered sellers, covering all 34 provinces in China. The buyers include micro, small, and medium-sized enterprises from different industries, while the sellers include student artists, professional designers, part-time freelancers, and micro, small, and medium-sized enterprises with different skills and services.

From the above business structure, it is clear that Yiping Freelancer's main focus is to solve the problem of connecting businesses with talents by creating an efficient crowdsourcing platform.

In terms of Gross Merchandise Volume (GMV), Yiping Freelancer has developed into one of the leading crowdsourcing platforms in the industry. As of 2023, Yiping Freelancer's annual GMV is approximately $350 million, second only to Zhu Bajie's $560 million GMV, making it the second largest crowdsourcing platform.

However, the network effect does not seem to have significantly impacted Yiping Freelancer's fundamentals.

According to the data disclosed in the prospectus, in the fiscal years of 2022 and 2023 (as of June 30), Yiping Freelancer achieved revenues of $12.81 million and $19.8 million respectively, with a year-on-year growth of 54.57%. However, the net losses during the same period were $3.41 million and $1.08 million respectively, indicating that the company is still in a loss-making state, although the losses have narrowed.

For the half-year ended on December 31, 2023, the company generated revenue of $8.53 million, a decrease of 15.04% year-on-year. The net profit for the period was $20,300, turning a loss of $682,900 in the same period last year into a profit, mainly due to a decrease in revenue costs caused by a decline in the acceptance of high-end business solution projects And the compression of the administrative expense ratio by 5 percentage points is related.

Even though the loss situation has been reversed, the operating conditions of Yiping Weike still leave much to be desired, mainly due to the company's "tight cash flow" and "high debt".

As of the fiscal year ended June 30, 2023, the company's operating activities generated a negative cash flow of approximately $1.5 million, with cash and cash equivalents at $610,000. As of the six months ended December 31, 2023, the company's operating activities generated a negative cash flow of approximately $340,000, with cash and cash equivalents at $270,000. In addition to two consecutive years of negative cash flow, the cash and cash equivalents are becoming increasingly tight.

At the same time, the company's total liabilities remain high: as of the fiscal year ended June 30, 2023, the company's total liabilities were $12.666 million, with total assets at $6.645 million; as of the six months ended December 31, 2023, the company's total liabilities were $11.042 million, with total assets at $5.3784 million. The scale of liabilities actually exceeds total assets, indicating significant debt pressure.

Such a high level of debt clearly reveals the current development dilemma of Yiping Weike - such high debt levels are directly related to the shared office business of Yiping Weike. This is a business that requires heavy asset investment and has high demands on fund operations, leading the company to face significant working capital pressure.

From the above analysis, it is clear that the strengths and weaknesses of Yiping Weike are equally apparent. The company has achieved the second position in the crowdsourcing industry, with advantages in sellers, small and medium-sized enterprise buyers, and brands. However, due to the heavy asset operation model, perennial cash flow tension, and high debt levels, weaknesses are also evident.

Industry "Small and Beautiful", Market Share 5.5% Lower than Industry Leader

Crowdsourcing is an online implementation method of the sharing economy, and crowdsourcing platforms are considered an important way to achieve the sharing economy.

Looking at the sub-markets of China's sharing economy, the three major categories that contribute significantly are life services, production capacity, and knowledge skills, accounting for 48.4%, 22.3%, and 12.5% respectively. Among these three sub-sectors, the knowledge skills sector has shown the most significant growth, with huge market demand and growth potential.

The data supports this. Looking at the industry development over the past five years, as one of the more mature industries in the network crowdsourcing platform sector, the market size of the knowledge skills industry has grown from $33.3 billion in 2018 to $68 billion in 2022, with a compound annual growth rate of 19.5%. According to Frost & Sullivan's forecast, the compound annual growth rate of the knowledge skills sector is expected to slow to 6.1% from 2022 to 2026, reaching $105.8 billion in 2026.

Currently, the penetration rate of the network crowdsourcing market is low, with the market mainly concentrated in specific areas such as creative design and software development. With the gradual control of the epidemic, rapid growth of market entities, and the rapid development of the sharing economy, the market size of crowdsourcing platforms in only creative design and software development is expected to return to rapid growth, increasing from $8.1 billion in 2024 to $24.3 billion in 2028, with a compound annual growth rate of 46.3%

(Image Source: Yipin Freelancer Prospectus)

It can be seen that although the online crowdsourcing industry may seem niche, it still has considerable room for imagination under strong market growth.

However, Zhìtōng Finance and Economics APP observed that for Yipin Freelancer, maintaining strong growth not only presents opportunities but also challenges.

According to Frost & Sullivan data, by 2023, the top three market participants in this industry are Zhu Bajie Network, Yipin Freelancer, and Jiefanghao, with a combined market share of 27.8% based on GMV, where Yipin Freelancer ranks second with a market share of 9.3%. It is worth noting that Zhu Bajie Network, as the industry leader, is expected to hold around 14.8% market share in 2023, far exceeding the combined market share of Yipin Freelancer and Jiefanghao.

In response, Yipin Freelancer also pointed out in the risk factors that the company faces intense competition, which may lead to a loss of market share, thereby potentially adversely affecting the company's business, financial condition, and operating performance. Specifically, the freelance market segment faces fierce competition, rapid development, low concentration, and is influenced by frequent technological and demand changes, as well as the introduction of new competitors, products, and services.

Furthermore, currently, traditional freelance and crowdsourcing websites in China include Zhu Bajie Network, Easy Project, Times Wealth, Mission China, Zhicheng, Creative Network, etc. Apart from Zhu Bajie Network with a large operating scale, most platforms have low market visibility, offer homogenized products and services, lack core competitiveness, easily attract users through price wars, lower the industry's gross profit margin, have limited overall market influence, and have not formed leading companies, affecting the overall expansion of the industry. This also means that Yipin Freelancer not only needs to face the suppression from the industry leader but also the pressure from emerging competitors constantly vying for market share.

Faced with intense industry competition, Yipin Freelancer has clearly realized that the company plans to focus on building brand awareness, enriching product categories, and providing differentiated services to better meet customers' unique needs. We intend to acquire smaller competitors to increase market share and gradually expand the company's market influence.

In summary, with internal challenges such as tight cash flow and persistently high debt levels, and external factors like insignificant advantages of leading players and significant competitive pressures, even if it secures the title of "the first stock of crowdsourcing platforms," the valuation level may still face discounts