Preview of US Stock IPOs | "Danger" and "Opportunity" coexist, can YunXuetang's digital enterprise training commercialization be validated successfully?

For business operations, corporate training is one of the important aspects. It not only can improve employees' skills and work efficiency, enhance the overall competitiveness of the enterprise, but also play an important role in helping the enterprise better adapt to market changes, maintain sustainable development, and operational efficiency.

However, in the actual implementation of corporate training, the effectiveness of training investment by enterprises is often difficult to quantify. Training activities may also suffer from insufficient coordination between the training department and business departments, lack of systematic planning, and strategic support. On the other hand, there is a lack of standardization and normalization in the training institutions in the market, with many training courses being either repetitive or of uneven quality.

Recently, YXT.US, a cloud classroom attempting to change the way of corporate training through digitization and SaaS, filed for listing on Nasdaq, aiming to raise up to $50 million. Can YXT.US succeed in this field of corporate training?

Over a decade of development to become the industry leader, but still in continuous losses

According to the Intelligence Finance APP, since its establishment in 2011, focusing on corporate training, YXT.US has developed a digital corporate learning solution that includes software SaaS services, content solution services, and digital enterprise learning operation services.

Through its cloud-based learning platform, YXT.US assists its clients in achieving digital transformation of corporate training by providing content products. As of March 31, 2024, the company has offered over 8,200 courses covering approximately 20 industries, with a total learning time exceeding 20,500 hours, including over 6,800 hours of proprietary courses.

From the company's official website, the courses provided mainly cover various aspects such as general management, marketing growth, general abilities, knowledge services, sales management promotion, business skills, etc., which can be summarized into six major areas: core talent development, management and leadership, job knowledge, industry-specific technology, business skills, content tools, etc.

As of March 31, 2024, the company had approximately 2,434 subscribed customers. According to Frost & Sullivan data, based on total revenue, subscription revenue, and number of subscribed customers, YXT.US was the largest digital corporate learning solution provider in China in 2023.

For the fiscal years ending in 2022, 2023, and the first three months of 2024, YXT.US had revenues of RMB 431 million, RMB 424 million, RMB 122 million, and RMB 83.2 million, respectively. Subscription revenue accounted for 85.5%, 82.0%, 81.4%, and 92.5% of the total revenue, respectively According to the ZhiTong Finance APP, YunXueTang's subscription revenue mainly comes from providing digital enterprise learning solutions through SaaS, including enterprise learning systems, personalized e-learning systems, teaching tools, and online course subscriptions. Typically, the company recognizes subscription fees as revenue on a straight-line basis during the subscription period.

In terms of expenses, the company's sales and marketing expenses, research and development expenses, and general and administrative expenses are relatively high. As of the fiscal years ending in 2022 and 2023, and the three months ending in 2023 and 2024, the company's operating expense ratios were 200.4%, 132.9%, 115.1%, and 114.4% respectively.

Sales and marketing expenses account for the largest portion of the company's operating expenses. In the fiscal year 2022, sales and marketing expenses alone accounted for 80.1% of the company's total revenue, and by the first three months of 2024, sales and marketing expenses accounted for nearly half of the revenue.

This high marketing expense ratio is due to the company enhancing brand awareness through online advertising, offline seminars, and marketing activities, as well as implementing incentive mechanisms to improve sales efficiency. In the future, the company plans to continue investing in sales and marketing to enhance brand awareness, retain existing customers, and attract new customers in the long term.

In terms of results, as of the fiscal years ending in 2022 and 2023, and the three months ending in 2023 and 2024, the company reported adjusted net losses of RMB 523 million, RMB 278 million, RMB 47.5 million, and RMB 41.9 million respectively.

The continued losses have put pressure on the company's operating cash flow, with net cash used in operating activities amounting to RMB 457 million, RMB 257 million, RMB 162 million, and RMB 58.5 million respectively during the same period. From the overall performance perspective, the company's chosen path of digitizing corporate training and SaaS is still in the investment phase, and it cannot yet be said to have been commercially successful.

With "risk" and "opportunity" coexisting, can commercialization be successfully validated?

According to the ZhiTong Finance APP, in terms of revenue composition, YunXueTang's large clients are mainly in industries such as electric vehicles, healthcare, and catering. As of the fiscal years ending in 2022 and 2023, the number of subscription customers for the company was 3439 and 3230 respectively, with net revenue retention rates calculated based on subscription revenue at 118.1% and 101.4% respectively

For Cloud Classroom, which relies mainly on subscription revenue, a decrease in subscriber retention rate may pose one of the operational risks.

Currently, digital enterprise learning solutions, as an emerging business model, rely on market acceptance for their business growth and expansion. However, many enterprises have already invested significant technological, financial, and human resources in traditional face-to-face corporate learning systems, which may lead to reluctance or unwillingness to bear the transition costs to digital enterprise learning solutions.

Therefore, it is evident that due to the relatively new nature of digital corporate training models, potential target customers may not fully recognize the necessity or advantages of such solutions.

At the same time, the company's revenue, operational performance, and cash flow depend on the overall demand for its solutions from customers. In unfavorable industry-specific economic and market conditions, corporate learning expenditures may decrease, which could also have a negative impact on Cloud Classroom's business expansion.

On the other hand, the demand for training content from enterprises is constantly evolving. As a provider of corporate training content, Cloud Classroom needs to enhance its training content and solutions in a timely manner, continuously update and develop them to meet the evolving needs of existing and potential customers. This also means that the company's investment in content will continue to be of a certain scale.

Currently, Cloud Classroom's training content is developed by the company itself or content partners. If it cannot ensure successful collaboration with its content partners, it may lead to a decrease in product competitiveness, thereby negatively affecting its revenue growth.

According to Frost & Sullivan data, the size of China's digital enterprise learning market reached RMB 126 billion in 2023 and is expected to grow to RMB 300 billion by 2028, with a compound annual growth rate of 18.9% from 2023 to 2028.

The Chinese enterprise digital learning market is still in its early stages of development, with the digital enterprise learning market in 2023 accounting for only 19.6% of the overall enterprise learning market, lower than the penetration rates of other enterprise software such as office automation systems at around 43.0% and video conferencing systems at around 35.0%.

In a relatively fragmented competitive landscape, as the largest provider of digital enterprise learning solutions, Cloud Classroom's commercialization path still needs more time to be validated in this market