Dong Yuhui is flying solo: The dusk of the "top stream model" in live e-commerce

EAST BUY (1797.HK) has offered Dong Yuhui an "N+1".

On July 25th, EAST BUY announced that due to career aspirations, commitments to other businesses, and personal time arrangements, Dong Yuhui has decided to resign with immediate effect.

In addition to fully paying all promised benefits and compensation to Dong Yuhui, Chairman Yu Minhong has sought approval from the board of directors and the board's remuneration committee to distribute all remaining undistributed profits to Dong Yuhui.

As a result, if we exclude Luo Yonghao, who gradually faded out of the live broadcast room after the "True Still Pass" campaign, Dong Yuhui can be considered the first top anchor to leave an MCN agency.

With Dong Yuhui's departure, Yuhui Tongxing is also separated from EAST BUY.

Another announcement released by EAST BUY shows that Beijing New Oriental Xuncheng Network Technology Co., Ltd. (referred to as "Xuncheng Technology") as the seller will sell 100% equity of Yuhui Tongxing (Beijing) Technology Co., Ltd. (referred to as "Yuhui Tongxing") to Dong Yuhui at a transaction price of RMB 76.5855 million.

Xuncheng Technology is the wholly-owned controlling company of EAST BUY.

Dong Yuhui's ability in product promotion speaks for itself.

When Yuhui Tongxing's Douyin live broadcast room just started in January this year, it achieved nearly 900 million in sales in a single month, surpassing Xiaoyangge and EAST BUY to become the top seller of that month.

Feigua data shows that Yuhui Tongxing's live broadcast room has been among the top two in sales on Douyin for six consecutive months in the first half of this year; in contrast, EAST BUY's live broadcast room was ranked outside the top 10 in June.

However, the split between Dong Yuhui and EAST BUY was long anticipated.

Yu Minhong explained this transaction further in an open letter to EAST BUY shareholders: since March this year, he has been in repeated discussions with Dong Yuhui and decided to transfer 100% of Yuhui Tongxing's shares to Dong Yuhui after the end of the fiscal year (May 31).

Yu Minhong stated that to ensure the normal operation of Yuhui Tongxing's business, EAST BUY agreed to transfer the developed information system to Yuhui Tongxing for free.

More importantly, the money Dong Yuhui used to acquire Yuhui Tongxing's equity was also arranged by Yu Minhong.

"I arranged for Yuhui to buy Yuhui Tongxing, the company was given to Yuhui", "All the profits earned by Yuhui Tongxing since its establishment have been left to Yuhui and Yuhui Tongxing to support their continued development," Yu Minhong stated.

This means that Dong Yuhui's personal IP and the "privatization" of Yuhui Tongxing's live broadcast room received assistance from Yu Minhong, making it a "seller financing" deal.

Since its establishment, Yuhui Tongxing has achieved a pre-tax net profit of RMB 189 million.

In comparison, the price at which EAST BUY sold Yuhui Tongxing is not considered expensive.

The third-party valuation agency for this transaction believes that due to Yuhui Tongxing's heavy reliance on Dong Yuhui, the latter's departure brings uncertainty to the operation and profitability of Yuhui Tongxing. Therefore, the net asset value of Yuhui Tongxing as of June 30, 2023, was assessed at RMB 76.5855 million by the cost method, becoming the transaction price.

This means that the PB ratio of the transaction for Yuhui Tongxing is approximately 1x.

Such pricing for a core asset is quite rare As a comparison, as of the close on July 25th, the Price-to-Book Ratio of the Wandai Livestreaming Sales Index (8841667.WI) is 2.2, and the PB ratio of Interact Group Holdings (1450.HK) is about 5.59.

In a sense, this transaction is more like a kind of "resignation compensation" for Dong Yuhui.

Since the turmoil at the end of 2023, Eastern Selection, which has been caught in a storm of one-sided public opinion, has exposed a high degree of dependence and vulnerability to Dong Yuhui.

The parting of ways today may have already planted the seeds back then.

Now, Eastern Selection has cut ties with the top influencer, at the cost of losing its only super influencer.

According to Wall Street News · TradeWind (ID: TradeWind01) learned from sources close to Eastern Selection that the contribution of Dong Yuhui to Eastern Selection's GMV reached a new high of 68% in July this year. The average GMV contribution in the past few months has been around 50%.

It has only been a little over half a year since the "short essay incident" caused Eastern Selection to lose 2 million followers in the live broadcast room.

The pain of losing the top influencer now needs to be borne together by the shareholders of Eastern Selection. The capital expenditure that once created the super influencer Dong Yuhui has also become a sunk cost.

The conclusion of this event will inevitably bring alertness and challenges to the star-making model of e-commerce live streaming.

On the one hand, live e-commerce needs the traffic donation from top players, but on the other hand, the siphon effect of top influencers will exacerbate the vulnerability of the MCN model of live e-commerce.

After Dong Yuhui announced his resignation, New Oriental Education & Technology Group Inc. (EDU.NYSE) plunged in pre-market trading, with the stock price falling by more than 8% at one point, narrowing to within 3% after the market opened; the stock price of Eastern Selection on the Hong Kong Stock Exchange has fallen by 54.83% year-to-date.

At the performance briefing for the first half of the 2024 fiscal year of Eastern Selection (six months ending on November 30, 2023), the management of Eastern Selection responded to the question of what role Dong Yuhui played in Eastern Selection:

"Anything done by Dong Yuhui must not go against the core strategic development of Eastern Selection."

However, now, just half a year later, Dong Yuhui is no longer part of the core strategy of Eastern Selection