The momentum of "recovery" continues, with Three Squirrels beginning to "bottom out and rebound."

At the end of August, Three Squirrels disclosed its latest semi-annual report. The financial report shows that in the first half of the year, Three Squirrels achieved revenue of 5.075 billion yuan, a year-on-year increase of 75.39%; net profit was 289.7 million yuan, a year-on-year increase of 88.57%.

For Three Squirrels, achieving such results is not easy. Looking at the second quarter alone, Three Squirrels achieved quarterly revenue of 1.429 billion yuan, a year-on-year increase of 43.93%; net profit was a loss of 18.58 million yuan, a year-on-year increase of 51.21%. It is worth noting that due to the obvious seasonal sales characteristics of snacks, losses in the second quarter are normal. Compared with the loss of 38.08 million yuan in the second quarter of last year, the second quarter of this year has shown significant improvement.

Admittedly, Three Squirrels' performance is recovering, but in the capital market, its stock price has fallen instead of rising.

As of the close on September 13, Three Squirrels' stock price was 15.86 yuan per share, with a total market value of 6.36 billion yuan. Statistics show that since hitting a high of 27.28 yuan per share in May, its stock price has been adjusting for more than four months, with a decline of over 40%. If calculated from the beginning of the year, the decline is still as high as 10.89%. It is worth noting that this is the fifth consecutive annual decline for Three Squirrels. In other words, after reaching a high in its first year of listing, the stock price has been falling continuously for five years. This reflects the market's attitude toward Three Squirrels.

In addition, after Three Squirrels went public, the continuous reduction of shares by major shareholders has also been one of the factors putting pressure on its stock price.

On September 4, Three Squirrels issued a pre-disclosure announcement stating that NICE GROWTH LIMITED, a shareholder holding more than 5% of the company's shares, plans to reduce its holdings of Three Squirrels shares by no more than 3.2 million shares, or no more than 0.8% of the company's total shares.

If this reduction is completed as scheduled, NICE GROWTH LIMITED's shareholding ratio will drop below 5%, no longer subject to the above rules. Since the lifting of the stock lock-up in 2020, the company has been reducing its holdings of Three Squirrels shares continuously, with its shareholding ratio dropping from the original 20.61% to the current approximately 5%, which can be described as a "clearance-style" reduction.

Behind the Recovery

Judging solely from revenue and net profit, Three Squirrels' performance in the first half of the year was indeed good.

Especially the revenue of 5.075 billion yuan in the first half of the year allowed it to surpass Bestore (3.886 billion yuan in the first half of the year) again, reclaiming its position as the "snack leader." However, if we look beyond revenue and net profit, the other data is not as ideal.

In terms of gross profit margin, Three Squirrels' gross profit margin in the first half of the year was 25.85%. Compared with peers, Bestore, Yanjin Shop, and Laiyifen had gross profit margins of 26.39%, 32.53%, and 41.28%, respectively, in the first half of the year. Three Squirrels' gross profit margin ranked "last" among the four listed snack companies.

In addition to having the lowest gross profit margin, its costs in the first half of the year also showed a significant increase.

The financial report shows that Three Squirrels' total operating costs in the first half of the year were 4.791 billion yuan, a sharp increase of 70.21% compared with 2.814 billion yuan in the same period last year. Breaking it down, the main increases were in operating costs, sales expenses, and financial expenses, which rose by 73.34%, 79.37%, and 122.63%, respectively, in the first half of the year.

It is worth noting that sales expenses in the first half of this year were 894.3 million yuan, a significant increase compared with 498.6 million yuan in the same period last year.

The large increase in sales expenses is actually related to Three Squirrels' channel changes. Relevant data shows that in the past two years, Three Squirrels has adjusted its channel strategy and started to focus resources on Douyin. The financial report shows that in the first half of the year, Three Squirrels' revenue from third-party e-commerce platforms such as Douyin, Tmall, and JD.com was 4.09 billion yuan, of which Douyin platform revenue was 1.224 billion yuan, a year-on-year increase of 180.73%.

From the current perspective, after entering the Douyin platform, Three Squirrels has indeed found a new growth channel. However, the high-growth period of interest-based e-commerce is nearing its end, and Three Squirrels' sales expenses have started to "rise sharply." The dividends from Douyin obviously won't last much longer.

In addition, in terms of inventory data, Three Squirrels' inventory in the first half of the year was 540.1 million yuan, compared with 358 million yuan in the same period last year, an increase of 50.86%. In recent quarters, Three Squirrels' inventory has been rising year by year. From the third quarter of 2023 to the first quarter of this year, Three Squirrels' cumulative inventory was 510.5 million yuan, 1.388 billion yuan, and 466.7 million yuan, respectively, with year-on-year increases of 17.3%, 29.56%, and 18.42%.

The "Confinement" of Traffic

For Three Squirrels, since the second year after its listing, its stock price has been falling continuously.

This is the market's feedback. Although stock prices are affected by multiple factors, such performance is likely due mainly to internal factors. Statistics show that since hitting a high of 27.28 yuan per share in May, its stock price has been adjusting for more than four months, with a decline of over 40%. Moreover, over a longer period, Three Squirrels' stock price has been declining in recent years. Compared with the highest point of 90.46 yuan per share, its market value has dropped by over 80%.

From an internal perspective, the main reason Three Squirrels has not gained recognition from investors is that it has not changed its reliance on various platforms and its business model of relying on traffic.

Since its success in selling pre-packaged nuts during the "Double Eleven" shopping festival in 2012, to its listing as the "first internet snack stock" in 2019 and becoming the first brand in the industry to achieve revenue exceeding 10 billion yuan, Three Squirrels' rise can be said to have fully benefited from the dividends of e-commerce. However, the drawbacks of this model are also very obvious.

On the one hand, Three Squirrels' growth will be highly dependent on platforms; on the other hand, Three Squirrels also has to pay high traffic fees. For a company, if temporary assistance is not upgraded in time, then for a mature company, being "backlashed" seems inevitable.

Relevant statistics show that as the dividends of e-commerce platforms gradually fade, starting from 2020, Three Squirrels' performance scale has been declining continuously. Especially in 2022, revenue of 7.293 billion yuan and net profit of 129 million yuan represented year-on-year declines of 25.35% and 68.61%, respectively. In addition, as e-commerce platforms entered a period of stock competition, Three Squirrels' traffic acquisition costs have also become increasingly high. From 2019 to 2022, Three Squirrels' sales expenses were 2.298 billion yuan, 1.712 billion yuan, 2.072 billion yuan, and 1.533 billion yuan, respectively.

This shows that high sales expenses are the "culprit" eroding Three Squirrels' profits.

Of course, Three Squirrels has also tried to make changes. In 2023, Three Squirrels began to transform. In terms of products, it started to focus on "high cost performance"; in terms of sales channels, it proposed a "D+N" omni-channel layout.

As mentioned above, the main direction of Three Squirrels' revenue growth comes from the Douyin platform. According to media statistics, Three Squirrels has more than 30 directly operated Douyin stores, among which the "Three Squirrels" and "Three Squirrels Snack Flagship Store" accounts have 6.719 million and 1.436 million followers, respectively. Three Squirrels' layout on the Douyin platform has gradually taken shape.

However, although the Douyin platform can indeed bring new growth momentum, it has not changed the essence of "buying traffic." Especially after the sharp increase in marketing expenses in the first half of this year, the "confinement" of Three Squirrels' traffic has become increasingly obvious.