After its initial public offering on the Nasdaq last year Hangzhou-based opinion leader agency startup Ruhnn Holding has decided to go private.
Ruhnn announced it has received a preliminary proposal from three company founders - Feng Min, Sun Lei and Shen Chao - to purchase all its outstanding American depositary shares at $3.40 each.
Ruhnn formerly traded on China's new over-the-counter market but delisted in April 2018 for undisclosed reasons. The company incubates opinion leaders to promote products via social media - especially livestreaming.
Less Top-Heavy Revenue
Ruhnn reported 248.5 million yuan ($37.77 million) in revenue during the quarter ended September - a decline of 9% year on year. It had a 20.20 million yuan adjusted net loss compared with a net profit of 2.5 million yuan in the same period last year, according to a financial report released this week.
Ruhnn's 180 opinion leaders attracted 295 million fans across social media during the quarter. Eight of them generated 33.2 million yuan during the time. However, the company's revenue structure changed compared with a year before when top talent accounted for the majority of revenues.
"The services revenue the eight top-tier opinion leaders generated accounted for 28% only among the title services revenue," the company said in its report. "No single opinion leader contributed more than 10% of the revenue."
Known as "the first opinion leader share," Ruhnn was relying heavily on its top influencer, Zhang Dayi, who once accounted for more than half of the company's sales from 2017 through 2019 - when it was first listed on Nasdaq in April 2019.
Zhang's product sales returns have fallen owing to negative publicity. She was warned by the wife of Alibaba senior executive Fan Jiang of "not messing with her husband." Fan was later demoted by Alibaba for his "mishandling of family issues," Alibaba said in a statement. This had a negative effect on the company's reputation."
The incident caused Ruhnn's shares to drop by 10% while losing $22 million at the time.
Weaving A Bigger Internet Strategy
Criticized that overreliance on top opinion leaders like Zhang was making for a weak business model, the company introduced more newcomers.
Among the 180 new opinion leaders, eight are top influencers who generated more than 10 million yuan in annual revenue while 45 are middle-level opinion leaders representing 2 million yuan to 10 million yuan in annual revenue, according to the company's prospectus in 2019.
In the latest quarter, Ruhnn spent 305 million yuan to incubate and train influencers - a 50% increase compared with the 205 million yuan spent in the previous quarter.
"It usually takes five to eight months for newcomers to mature as opinion leaders," the company said. "Training courses cover Photoshop, video editing, fashion, e-commerce business operations and other marketing sessions."
Chief executive officer Feng said he can't guarantee newcomers can become top opinion leaders but he can ensure they will become "professional."
By 2020, China's online-streaming users will reach 524 million people. Meanwhile multichannel network companies, or opinion leader agencies, will top 28,000, according to iiMedia Research.
Analysts question how long the business model can last in the country 's cutthroat social media environment.
New Rules Of The Game
However, the government issued a policy Monday to impose restrictions upon livestreaming as well as top opinion leaders' online businesses.
Inflation in sales among livestreaming platforms has formed a misinformation chain in the business, the China Consumers Association said. Meanwhile, "malicious click farming" and "false reporting" also pollute the industry. Aesthetic medicine livestreaming reportedly has high rates of returned goods.
The new rules require livestreamers, opinion leaders, online store retailers and gift-giving fans to register with their real names. Critical sectors like food and medicine will have to face stricter inspection for business licenses.
New livestreaming stars Li Jiaqi and Viya Huang, who get tens of millions of yuan from livestreaming sales and advertising, were specifically criticized by regulators.
Ruhnn's shares were last trading at $2.89 each.
